Many business premises are rented on protected tenancies. This offers tenants security of tenure. It means that, in most cases, landlords are obliged to renew the lease when it expires on terms, which are not significantly less favourable than before. Find out what you need to know about protected leases for commercial premises.
Why are commercial leases protected?
If you are running a business, you need the security of knowing that you can continue trading from your premises, even if your lease is close to expiring. You may have been operating for some time from a location that suits you, your customers and suppliers and where you are known well. Having to pack up your business and move premises could be as detrimental to your company as it is inconvenient.
Fortunately, as a business owner, the law in England is one your side. Under the Landlord and Tenant Act 1954 Part II business leases are protected. This means that most commercial tenants have a statutory right to have their tenancies renewed on expiry.
If you are not able to come to agreeable terms with your landlord, the law gives you the right to apply to the courts to set the new lease terms including a fair market rent based on expert advice.
Can a landlord refuse to grant a new lease?
Under the 1954 Act, a landlord can only refuse to grant a new lease to a tenant, who wishes to remain in occupation, on certain grounds. The principal ones are:
· Where a tenant has failed to pay their rent or keep to other conditions of the lease.
· If a landlord wants the property back for his own use or to redevelop it.
· If the landlord offers to provide suitable alternative premises.
· If the property has been divided into smaller, sub-let units and the landlord wishes to let the property as a whole.
Usually, the terms of the new lease can be agreed between landlord and tenant without the need for court proceedings which can be costly.
Are there other exceptions?
The landlord and tenant can agree to contract out of a protected lease, if the tenant is willing to do so. In this case, there are certain formalities that need to be complied with.
This situation is most common where the lease relates to part of a building or where the landlord is unsure of his plans and wishes to ensure that he is able to regain possession of
the property without having to pay compensation or establish one of the grounds set out in the Act and avoid potential dispute.
What happens at the end of the lease term?
At the end of the term specified in the lease document, the lease continues until either the landlord or the tenant takes steps to end or renew It, which can be done once the lease has no more than12 months left to run. If neither party takes any action, the lease simply continues until either takes the appropriate steps. Whether the landlord or tenant wishes to take action will depend not only on individual circumstances but also strategically on whether rents for similar properties are increasing or decreasing, which makes advice from a surveyor experienced in commercial property so necessary.
How do I renew the lease on my business premises?
Once your lease has no more than 12 months left to run, you can serve what is known as a section 26 notice on your landlord, giving not more than 12 nor less than 6 months notice that you require a new lease. This is in a form prescribed by the legislation and includes details of the amount of rent and the length of the new lease you propose. Your landlord has two months to dispute the granting of the new lease, under one of the statutory grounds, or he may suggest alternative terms for a renewal of the lease. If agreement cannot be reached before the proposed renewal date, the matter has to be referred to the court.
What can a landlord do?
Once the lease has no more than 12 months left to run, a landlord can bring it to an end by serving a Section 25 notice under the Act using a prescribed form. This gives no more than 12 nor less than 6 months notice of either the fact that the landlord is willing to grant a new lease including his proposals for the length of the new term and the rent or that he is not willing to grant a new term and on which of the statutory grounds he relies. If the landlord opposes the grant of a new lease and the Tenant disputes this, or terms for a new lease cannot be agreed, an application will need to be made to the court.
If a landlord refuses to renew the lease on one of the grounds which is no fault of the tenant – to occupy the property themselves, for example rather than because of a failure to pay rent, then the tenant may be entitled to compensation.
How can I find out more?
Renewing a business lease is a complex area and anyone contemplating the process should get professional advice. One of the team of Chartered Surveyors in our Commercial Department would be happy to provide this. Please also contact us to discuss your requirements if you would like help finding commercial premises within the local and surrounding areas.
If you have any questions about a protected lease, we would be happy to answer them, please contact us today.