Partner Katja Wigham, in our Commercial Property team, explains what tenants of a commercial property should do when their lease expires.
Plan ahead if your commercial lease is expiring
When you have been in occupation of premises under a lease for some time, have fitted out the premises perfectly for your business and have taken the time and effort to build up your business from that location, it can be worrying when you are nearing the expiry of your lease.
The best way to ease the worry is to give yourself as much time as reasonably possible to make the necessary arrangements for a new lease or to find alternative premises. We recommend that you begin taking steps to negotiate terms for a renewal lease at least a year before the expiry date of your current lease. Although a renewal lease can be drafted fairly quickly, this is only the case once terms have been agreed and once both parties are ready to cooperate.
Is your commercial lease 'protected'?
It should firstly be considered whether you have a ‘protected lease’ or whether the lease has been ‘contracted out’ of the security of tenure provisions of the Landlord and Tenant Act 1954 (“the Act”).
If your lease is ‘protected’ you will be entitled to a new lease, on similar terms (subject to reasonable modernisation) after the expiry of the contractual term (unless the landlord is successful in terminating the lease in accordance with the Act - not discussed in this note). The parties can either negotiate the terms of a new lease informally or formal notices can be served. A Tenant can serve a notice on the Landlord requesting a new lease and stating the desired terms i.e. length of new lease and rent. If you do not negotiate a new lease by the end of the lease but remain in occupation you will continue to occupy under the terms of the current lease under a statutory continuation (“holding over”). This can be advantageous if market rent has increased but you should be aware that the Landlord can serve notice to renew the lease with a proposed higher rent, and/or can apply to the court for a higher rent.
Seek initial advice on the commercial terms of your lease from a surveyor or valuer
You should take advice from a surveyor/valuer as to the rental figure. They can also carry out rent negotiations for you.
If the lease does not have statutory protection, it will expire on the contractual expiry date. This means you have no rights to stay and could find yourself having to vacate the premises with nowhere else to go. If you continue to occupy beyond this date and the Landlord does not take steps to remove you from the premises then you would be ‘trespassing’ or potentially occupying as a “tenant at will” whilst negotiations for the new lease take place. If this situation continues for some time it could be argued that you have accrued the rights afforded by a protected lease. It is however safest to negotiate a new lease which will run from the expiry of your current lease so you have certainty for your business.
If a lease renewal is refused by your landlord
If the Landlord refuses a renewal lease (or takes steps to terminate the protected lease) you will of course want to take steps to find new premises. It should however be noted that you will have obligations under your current lease that will need to be dealt with. For example, if you are responsible for repair of the premises, you will need to deal with any dilapidations before vacating, or agree to pay a dilapidations sum to the Landlord and may need to deal with reinstatement of alterations.
Instruct a specialist Commercial Property solicitor
There are many factors to consider when you are nearing the end of your lease, whether or not you wish to stay. Legal advice should therefore be sought early on to assist with the appropriate next steps to ensure that the transaction is as smooth and stress free as possible.
For further information or legal advice, please contact email@example.com or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.