What happens if a business lease expires?
As a business owner, and unless you own the freehold of your commercial property, a commercial premises lease will be one of the most essential elements of running your business. Therefore, if you are nearing the end of your commercial lease, it is essential that certain steps are taken to ensure you do not lose out on your right to continue the occupation of your business premises, should you want to or end the lease without incurring additional rent and expenses.
In England and Wales, the steps you will need to take and your legal rights concerning your lease, will largely depend on whether your lease is subject to the Landlord and Tenant Act 1954, and accordingly, and subject to some limited exceptions, commercial tenancies are divided into two categories:
Inside the Act - Those that benefit from the security of tenure provisions in the Landlord and Tenant Act 1954 (“the Act”)
Outside the Act – Those that have specifically agreed to be excluded from the Act
What protection does the Landlord and Tenant Act 1954 Provide?
In most cases, commercial tenants are protected under the Landlord and Tenant Act 1954 (the Act) which provides commercial leaseholders ‘security of tenure’. This means they have a statutory right to renew their tenancy upon expiry.
Yet, like any contract, breaching terms of your lease, could mean that you forfeit your rights under this Act, if for example, your rent is in arrears or the premises is in a state of disrepair.
Normally, at the end of a commercial lease, a landlord and tenant will negotiate the terms of a new lease between themselves. Where there is a dispute over a commercial lease renewal, either party can apply to the court to have a Judge determine the issue.
Regardless of the circumstances at the end of a commercial lease, the landlord is obligated to follow a set notice procedure and cannot suddenly evict a commercial tenant if they are inside the act.
Tenancy Agreements Outside the Act
A commercial landlord and tenant can agree to ‘contract out’ of the security of tenure provisions. The protection is thereby heavily weighted towards the landlord as they will have the freedom to do with the building as they please when the lease is over, including offer the lease to new tenants or take possession of the building for their own purposes, which without the agreement of the existing tenant, would be in a violation of the 1954 Landlord and Tenant Act if the lease fell within this.
At the start of a commercial lease outside of the Act, the tenant must be supplied with a 14-day notice that fully explains the consequences of forfeiting their right to security of tenure. The tenant is required to sign a statutory declaration stating they fully understand the consequences of their decision to contract out of the Act.
How to Renew a Commercial Lease
Depending on the original length of your lease terms, when renewing a commercial lease, you will need to inform your landlord 6-12 months prior to the lease’s expiry date. Your landlord will have two months to agree to the lease renewal or to dispute the granting of a new lease which will have to be under certain grounds. Although tenants with the protection of the Act have a right to renew, a landlord can dispute this if it can prove any of the statutory grounds, to deny the renewal.
Recommended actions you should take when considering a lease renewal include:
check the expiry date for your lease
check whether you have rights under the Act; and
consider your renewal strategy at least 12 to 24 months in advance of the expiry date.
Experienced Commercial Lease Solicitors
This can be a complex area of law with constant variations that will affect your rights as a tenant or landlord. To ensure you follow all your obligations, and do not find yourself in a stressful dispute when renewing a commercial lease, you should seek expert legal advice at an early stage so that the right solution can be found for you and your business.
At Rose & Rose, our highly experienced commercial property solicitors, in our dispute department can assist you when renewing a commercial lease and with all commercial property law matters. Whether you are a tenant needing strategic advice to suit your business needs or if you are a Landlord wanting guidance on a renewal dispute, we have the knowledge and expertise to help you.
If you would like further information on renewing a business lease or would like advice on a commercial property dispute, please contact us on 0208 974 7490 or firstname.lastname@example.org to discuss your commercial property matter and we will provide you with further and specific advice tailored to your circumstances.