Often spoken of in the same breath as Rent Reviews and negotiated by surveyors in a similar way, Lease Renewals are actually quite different in their legal form. They are very much a creature of the law and, in most cases, every part of their existence is circumscribed by Part 2 of the Landlord and Tenant Act 1954
The 1954 Act gives business tenants security of tenure which is a statutory right to remain in the premises when their lease ends and to seek a new tenancy. The landlord may oppose renewal on limited specific grounds, such as where the tenant has failed to pay the rent or meet other lease obligations, where the landlord offers alternative suitable accommodation; where there is a need to reorganise the holding if sub-letting has taken place; where the landlord intends to redevelop part or all of the premises; and, subject to certain safeguards, where the landlord intends to carry on a business at the premises or live there.
A landlord successfully opposing the grant of a new tenancy under certain of the “no fault” provisions must pay compensation to the tenant. The amount payable depends on the rateable value of the premises and how long the tenant has been in occupation.
If the landlord and tenant cannot agree on a new lease, the tenant can apply to the court, which will determine whether a new lease should be granted and fix the terms of the new tenancy. These will usually closely follow the terms of the existing tenancy, but the new rent will reflect the current open market rent for similar premises. There is also provision for interim rent, which the court can order to be payable pending determination of the new rent.
Most commercial leases qualify for protection under the Act. Key criteria are:
- Longer than 12 months certain
- Business (not residential or agricultural)
- Tenant is in occupation
- Lease is not “Contracted out”
A landlord and tenant may, at the commencement of the lease, agree in writing to exclude lease from the provisions of the Act in relation to security of tenure and compensation but this must be done strictly in accordance with the required procedure. If a lease is Contracted Out, the tenant will have no right to remain in occupation after the contractual expiry date and will not be entitled to any compensation if the landlord refuses a renewal request. This naturally places a tenant in a weaker negotiating position if hoping to renew, though often the tenant’s strongest card to play is the threat to move elsewhere.
A protected tenancy continues after expiry until brought to an end by one of the parties.
The landlord can bring a tenancy to an end by serving a Section 25 notice stating the intended date of termination which must be not less than 6 months or more than 12 months from the date of service (and not before the contractual end date of the lease, of course)
If a tenant does not vacate on expiry , he can bring the tenancy to an end at any time afterwards on 3 months notice of intended vacation or on serving a Section 26 notice requesting a new tenancy to commence not less than 6 months or more than 12 months after the date of service (again, termination cannot be earlier than the contractual end date) A S26 request must state the terms on which the tenant wishes to renew. If the landlord opposes renewal, he must serve a counternotice within 2 months, setting out his grounds for opposition.
A landlord’s S25 notice must state whether he opposes renewal and, if he does not, must propose suitable terms for the new lease. These are a basis for negotiation and the tenant need not accept them or serve a counternotice.
S25 and S26 notices are mutually exclusive; once one has been served, the other cannot be.
Usually, negotiations ensue but the tenant or the landlord may apply to the court for a new tenancy (after expiry of the counternotice period in the case of a S26 notice having been served) at any time before the stated termination date. If no application has been made by the termination date in the S25 or S26 notice, the tenant’s right to renew is lost, however the parties may (and very often do) agree to extend the deadline, saving unnecessary court time and costs whilst negotiations proceed.
Either party may apply to the court for an Interim Rent to be set. This is a rent to apply (backdated) to the period between the earliest date for termination that could have been set in the S25 or S26 notice and the date of the commencement of the new tenancy. It is usually the same as the rent under the new tenancy but not necessarily, particularly if lease terms have changed or market conditions have altered in the interim period.
Harrison Goaté will manage the process from inception to grant of new lease, usually working closely with the client’s own solicitor who will deal with service of notices and other legal issues.
Typically fees are based on 10% of the annual rent under the new lease but can also be quoted on a fixed fee or time basis.