Law guide: Property

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Renewing a commercial lease

Renewing a commercial lease

Contents

The Landlord & Tenant Act 1954 and the Business Tenancies (Northern Ireland) Order 1996

The Act and Order apply to tenants who occupy premises for the purpose of a business.

In England and Wales commercial leases which include the provisions of Part II of the Landlord and Tenant Act 1954 (The Act) gives business tenants the right:

  • To remain in the premises when the lease ends
  • To apply to court (Lands Tribunal in Northern Ireland) for the lease to be renewed with the landlord only being able to oppose it on limited grounds

However, in Northern Ireland, business tenants have these rights anyway as they cannot be excluded.

This protection is known as 'security of tenure'.

The Act or Order provides business owners with the knowledge and security that they will not be forced to relocate their business when the term of their commercial lease comes to an end.

Exceptions

The protection given to tenants by the Act or Order does not apply in the following circumstances:

  • If the fixed term of the lease does not exceed six months (or nine months in Northern Ireland), although this exclusion would not apply if the lease contains a provision allowing the term to be extended or if the tenant has occupied the property for over 12 months.
  • In England and Wales, if the landlord and tenant agree to exclude the protection of the Act from the terms of the lease. Generally landlords would require the Act to be excluded if the term of the lease is relatively short (between one to five years), although this is largely a matter of negotiation between the parties.

In England and Wales, in order to exclude the Act from the provisions of the lease, the landlord must serve a notice on the tenant before entering into the lease warning him or her of the consequences of excluding the provisions of the Act. After receiving the notice, the tenant must sign a declaration confirming the notice has been received. The declaration may need to be witnessed by a solicitor if it is being signed within 14 days from the date that the lease is due to commence. The lease must also contain provisions stating that the Act is excluded and referring to the landlord's notice and tenant's declaration.

  • If the tenancy is a tenancy at will. This is an agreement to occupy business premises for an open ended period of time (no fixed term applies). The landlord and the tenant can withdraw from the agreement at any time.
  • In England and Wales if the premises are licensed to sell alcohol as the main use of the premises(e.g. a pub). This applies to leases that were granted before 11 July 1989 but does not include premises licensed to sell alcohol where the sale of alcohol does not form the main part of the use of the premises (such as a hotel or restaurant). Leases created after 11 July 1989 for premises licensed to sell alcohol are protected by the Act.
  • In England and Wales if the tenancy is an agricultural business tenancy. These do not come under the remit of the Act and are governed by the Agricultural Holdings Act 1986 or The Agricultural Tenancies Act 1995.

Terminating a lease under the Act or Order

Both the landlord and tenant have a right to serve a written notice in order to terminate the lease.

The tenant's notice can be served before or after the term of the lease comes to an end, so long as the tenant has occupied the premises for at least one month. The notice does not have to be in a particular form but should be served no later than three months before the end of the term of the lease or give the landlord at least three months' notice if served after the end of the lease.

If the landlord wants to regain possession of the premises from the tenant, he or she must give a notice to the tenant no more than twelve months and no less than six months before the expiry of the fixed term of the lease. The landlord's notice must be in a prescribed form and must state the grounds under the Act or Order which are being relied upon. The grounds provided for in the Act or Order are as follows:

  • Tenant's failure to carry out its repairing obligations
  • Tenant's persistent delay in paying rent
  • Substantial breaches of other obligations of the lease
  • Suitable alternative accommodation being available to the tenant
  • Landlord's intention to demolish or reconstruct the premises
  • Landlord's intention to occupy the premises

Renewing the lease under the Act or Order

A landlord may be happy to grant a new lease to the tenant under new terms but in order to do so will need to serve a notice terminating the existing lease. This notice may be served one year before the lease expires and must specify the expiry date as the date of termination in the notice. The notice must be in a prescribed form and should contain some basic details of the landlord's proposed terms for the new lease. The notice should also state a date by which one of the parties must start court proceedings if an agreement cannot be reached.

Alternatively, the tenant may serve a notice in a prescribed form upon the landlord requesting a new lease. The notice should state a commencement date for the new lease being no more than twelve months and no less than six months from the date that the notice is served on the landlord. The notice should also state a date by which one of the parties must start court proceedings if an agreement cannot be reached.

Thereafter there is usually a period of time for the parties to negotiate the terms of a new lease and in the majority of cases the need to start court proceedings is usually avoided. Generally, the main term to be negotiated is the rent payable under the new lease.