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11 November 2019
Commercial property lease renewals – your questions answered

Commercial property leases come in all different shapes and sizes.

Usually, the lease sets out all the terms which both the landlord and tenant must abide by.

Whenever a tenant signs a lease, it’s their responsibility to negotiate suitable terms with the landlord.

As a commercial property specialist with more than 20 years’ experience, Garness Jones has in-depth knowledge of the Landlord & Tenant Act 1954, the primary legislation which influences the terms of a commercial lease contract.

We listen and understand your requirements, before using our expertise in property law (and the overall market conditions) to take the best course of action on your behalf.

The aim of this article is to explain how commercial lease renewals work once your current deal has expired.

What is the Landlord and Tenant Act 1954?

When renewing a commercial property lease, most businesses are protected under the Landlord and Tenant Act 1954, a piece of UK law which ensures a business tenant cannot be thrown on to the street.

In certain circumstances, this important Act also gives business tenants certain rights when it comes to renewing a lease which is at its end.

Even if a lease reaches its expiry date, the 1954 Act means it does not automatically come to an end.

Potentially, it could carry on indefinitely until one of the termination procedures outlined in the act are triggered to bring about its conclusion.

When is the best time to renew a commercial property lease?

If your commercial property lease is coming to an end soon and you want to renegotiate it, the best time to do this is between 6 to 12 months before its end date.

This is the same whether you’re a landlord or tenant – so it’s important to know and consider all your options at this stage.

If neither party initiates the lease renewal process, things will continue under the same terms under a process which is known as ‘holding over’.

Can a landlord initiate a lease renewal?

If you’re a landlord who wants to initiate a lease renewal, you need to serve a ‘Section 25’ notice on your tenant between 6-12 months before the termination date specified in the lease.

If the lease is holding over, you must state a date in the future which is at least 6 months after the notice has been served.

This notice must clearly state your proposed new terms or the reason why you do NOT want to issue a new lease.

In theory, if a tenant opposes the new terms, and both parties cannot reach a suitable agreement, either one can ask a court to reach a decision and set ‘fair’ terms.

Can a tenant initiate a lease renewal?

If you are a tenant who wants to start the renewal lease process, you must serve a ‘Section 26’ notice on your landlord between 6-12 months before the proposed start date of the new lease.

A tenant is legally entitled to propose terms, but if both parties cannot reach an agreement on what is ‘fair’, either one can apply to a court to set them.

In reality, even if renewal terms cannot be agreed, it is extremely rare for proceedings to end up being resolved in court.

Can a landlord refuse to renew a lease?

A landlord can object to a lease renewal instigated by a tenant, but they must explain why and on what grounds, in accordance with the permitted reasons laid down in the 1954 Act.

A landlord cannot oppose a lease renewal simply because they do not like the tenant. But if they do not want to offer a new lease, they must serve a counter notice within two months to confirm the grounds why not.

There are several grounds on which this can be done, but the two most common are:
• Landlord requires premises for purposes of its own business
• Redevelopment of premises
Others reasons include:
• Non-payment of rent
• Breach of covenant to repair

How do Garness Jones help tenants and landlords?

When the end of your commercial property lease approaches, your options are quite broad ranging.

Our aim is to help you take the right course of action that’s best for your business.

When entering into a lease renewal, we usually:
• Conduct a valuation of the property
• Negotiate terms for renewing the lease
• Negotiate with the landlord and/or tenant
• Liaise with the solicitors of both parties

Should a suitable outcome prove unachievable, we can help you to form alternative plans.

If a landlord decides not to renew the lease, we can help to market the property or we can help a tenant to search for other premises if they choose to relocate.

Why should you choose us to conduct a lease renewal?

In most cases, renewing a commercial property lease centres around trying to agree new terms.

Whilst a landlord is legally allowed to deal directly with a tenant, negotiations are usually carried out by a Chartered Surveyor or a valuer on their behalf.

Generally, the main principle is that the previous lease (if available) is used as the starting point for the terms which could be included in the new lease. Other factors, such as comparable rents for similar nearby locations, are also taken into account.

In our experience, it’s important for clients to show a flexible attitude from the outset as this often helps negotiations to run smoothly.

Having successfully negotiated thousands of leases renewals across Yorkshire and Lincolnshire since our formation in 1996, Garness Jones is vastly experienced in this highly-specialist area.

Sometimes, it is necessary to combine our advice as Chartered Surveyors with the expertise of a solicitor who specialises in commercial property, but we will always inform you if this is the best approach to take.

For those landlords who appoint us to manage a property portfolio, we plan ahead and schedule rent reviews and lease renewals on a regular basis.

If you’re coming to the end of a commercial property lease and you intend to renegotiate, call 01482 564564 - our experienced team of specialists will be happy to help.

By Simon Preston
Commercial Management Surveyor

Commercial property lease renewals – your questions answered

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