Pitfalls to avoid when renewing a commercial lease

January 7, 2010
All Tallents Articles Commercial law

Alistair Millar, Commercial Property Lawyer and Director of a partner company in Tallents Solicitors Southwell, points out the following pitfalls to unwary tenants.

In the current financial climate you’ve managed to keep your business afloat and are probably starting to feel more confident about the future. Customers are coming to your business premises and your marketing is paying dividends. However, if your commercial lease is up for renewal within 12 months a renegotiation strategy can be critical to ensure you achieve the best deal possible.

Alistair says,

First you have to ask if you want to renew your lease. If the answer is yes then you need to establish whether you have a statutory right to renew. The 1954 Landlord and Tenancy Act protects tenants of business premises and gives them the automatic right to renew however this right can be excluded by the landlord at the outset of the lease. If you are in any doubt you should always ask your lawyer to check your lease for you.

Alistair continues,

If you do enjoy a right to renew, you can make an official request for a new lease at any time during the last 12 months of the lease; this is known as a s26 notice which will state the terms you require (length of lease, expected rent etc.). However, this is provided your landlord hasn’t already served notice on you. The landlord then has two months to say whether or not they agree to your request. In certain circumstances, the landlord is entitled to refuse to grant you a new lease and your lawyer can advise if you have a right to compensation.

If you do nothing, the landlord might serve you with a formal notice, known as a s25, which will end the lease at the original end date of the contractual term stated in the lease. This notice will state whether the landlord wishes to offer you terms for a new lease and, if they do, the proposed terms of that lease.

This is a complicated area of law and sometimes tenants find it easier to just do nothing and hope that everything will work out in the end. However, if both the tenant and the landlord do nothing, and the tenant’s statutory right of renewal has not been excluded at the outset, then the lease will not end even if the contractual term has expired. Instead, the lease will carry on until either the tenant or the landlord serves one of the notices already referred to.

Alistair points out,

Doing absolutely nothing can be very tempting because until one of you serves notice, you will continue to pay rent at the same rate and you won’t incur the expense of dealing with renewing the lease. However, lease renewal is the perfect time to renegotiate rents and since, in the current market commercial rents are dropping, in some cases it can make good business sense for the tenant to serve notice first and try and renew the lease at a lower rent.

Alistair finishes,

Deciding what to do and when is critical and it’s definitely worth speaking to your laywer first to decide on your strategy, since serving the wrong notice at the wrong time could mean you end up relocating your business at fairly short notice. If you are in the last year of your lease and considering your options, the timing of service of the relevant notice can be critical and an incorrect notice may be deemed to be invalid. We, at Tallents, always recommend you involve your lawyer as early as possible in a commercial lease renewal.

Published November 2009
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