To Renew or Not to Renew…that is the question…

• Posted onNovember 10, 2016

The premises from which a business operates are an integral part of a business’s day to day operation. This is particularly the case for businesses that rely on their location to bring in customers/clients, such as shops, pubs and other businesses with niche setup requirements that may not find it easy to relocate.

It is therefore important to consider what happens when the lease term expires well in advance of that date arriving to avoid being left in a difficult position on expiry of the lease.

Leases Within the Landlord and Tenant Act 1954

If a tenant enjoys the protection of the 1954 Act, their lease will continue automatically at the end of the contractual term of the lease and the tenant can remain in occupation of the premises on the same terms.

Should the tenant business then wish to leave the premises at this point they can do so provided they give at least 3 months’ notice to the landlord.

However, if ongoing stability for the business is a key factor, the tenant may instead wish to trigger the statutory renewal process under the 1954 Act and seek to agree a new lease with a fixed term at an open market rent.

To initiate the renewal process, a tenant must serve a notice on its landlord. This notice will set out the date for the commencement of the proposed new lease (which must be between 6 and 12 months from the date of the notice), and other proposed terms (e.g. term length, rent and break clauses).

If the landlord is happy to renew the tenant’s lease, the parties then have the opportunity to negotiate terms. However, if the parties cannot agree, either party may apply to the Court to decide the terms of the new lease for them.

If an application is not made to Court before the last day of the lease, the lease will terminate. A landlord can also initiate the renewal process and is likely to do so if rents are rising or if it believes that a long term fixed lease will increase the value of their property.

Although tenants with the protection of the 1954 Act have a right to renew, a landlord can object to granting a new lease to the tenant if they can prove that any of the statutory grounds for refusal.

For example, when the landlord wishes to use the premises for their own business, demolish the premises for development purposes, or if the tenant has persistently breached their lease.

If the tenant does not accept that the landlord is entitled to object, either party can apply to Court to determine the issue.

Leases Outside the Act

A tenant that does not have the protection of the 1954 Act will have gone through a process of notice and statutory or simple declaration to exclude their statutory rights when their lease was granted.

The effect being that they will have to leave the premises at the end of their lease unless they can agree terms for a new lease with their landlord, or the lease contains an express contractual right allowing the tenant to renew.

The cost to the tenant in loss of business and down time often associated with relocation can be significant to a tenant’s business and as such careful consideration should be given to this issue during lease negotiations.

Please contact us for more information or advice.