The end of a commercial lease
The first thing to bear in mind is a commercial lease or business tenancy agreement will not automatically end once the fixed term expires – provided it’s protected by the Landlord and Tenants Act 1954 (LTA 1954) and satisfies certain conditions under the act.
If protected, the tenancy will continue to run on the same terms until it has been correctly terminated by the commercial landlord or tenant.
Some business tenancies expressly state they are not protected by the act – this is known as ‘contracting out’. Here, the tenancy will end unless the commercial landlord or tenant correctly renew the lease.
For more guidance on ‘Security of tenure’ for business tenancies and a further explanation on contracting out of the LTA 1954, see our previous article – Security of Tenure & the 1954 Act for Business Tenancies here.
What must either party do to renew the lease?
Either the commercial landlord or tenant can renew the tenancy in accordance with strict provisions of the LTA 1954. Either party can renew the lease by serving a notice on the other party.
- The commercial landlord would serve a ‘Section 25’ notice on the tenant – the landlord can serve this notice to correctly end the existing commercial lease and propose a new tenancy, or simply end the commercia lease completely.
- The business tenant can serve a ‘Section 26’ notice on the landlord to renew the tenancy.
- Generally, either notice is served not more than 12 months and not less than 6 months before the intended termination or renewal date.
If the objective of either party is to renew the lease or, in the case of commercial landlord to end the tenancy, then both parties must ensure notices have been correctly drafted. Both notices must set out key information for the other party’s attention – known as the ‘prescribed information’.
Prescribed information: key points for the commercial landlord
The prescribed information contained on a ‘Section 25’ notice served by a landlord will be different depending on whether the landlord wants to renew the commercial lease or end it.
Renewing the tenancy: If the landlord wants to renew the tenancy, the Section 25 notice will confirm this and include a ‘schedule’ that sets out the proposed terms for the new tenancy.
Ending the tenancy: If the landlord wants to end the tenancy, the ‘Section 25’ notice will specify the termination date and set out the grounds the Landlord will rely on for opposing renewal of the lease. These must be valid grounds under the LTA 1954.
If the landlord wishes to end the tenancy on ‘non-fault’ grounds, then the business tenant can claim compensation from the landlord for ending or opposing the renewal of the commercial lease.
Once a Section 25 notice has been served by a landlord, it cannot be withdrawn unless the business tenant agrees to the withdrawal. The grounds for ending or opposing the renewal of the tenancy must therefore be considered carefully by the landlord.
Key points for business tenants
The Section 26 notice must also set out all prescribed information that is required under the LTA 1954 for the notice to be valid.
A landlord wishing to oppose a business tenant’s request for a lease renewal, must respond to a Section 26 notice by serving a ‘counter-notice’ within two months of receiving the tenants’ request.
If a landlord serves a Section 25 notice first, then a Section 26 notice cannot be served and vice versa.
Failure by either party to include all the prescribed information on either notice will result in the notices being invalid. It is important to seek legal advice or have the notices drafted by a solicitor if in any doubt.
Our commercial property solicitor, Barnaby Heap provides guidance on the 7 grounds upon which a Landlord may object to the grant of a new lease in his article here.
When are court proceedings needed?
The commercial landlord can apply to the court for an order terminating the tenancy without renewal once a Section 25 notice has been served or a counter notice is served in response to a tenants Section 26 notice.
Likewise, the business tenant can apply to the court to challenge the landlord’s grounds of opposition for a lease renewal that are listed in the Section 25 notice.
A commercial landlord may wish to apply to the court before the tenant makes an application and vice versa.
The business tenant can apply to the court for a determination on the terms of the new lease as soon as a Section 25 notice, opposing a lease renewal has been served.
The business tenant can also apply to the court once a counter-notice has been served by a landlord in response to a Section 26 notice, or two months has passed since the tenant served the Section 26 notice.
If renewal of the lease is not opposed by either party, but agreement over the terms of the new lease is disputed, then either party can apply to the court for a determination on the terms in dispute.
The method for issuing court proceedings will be different depending on whether proceedings relate to opposing renewal of the commercial lease, or just determining new terms when renewal of the tenancy is not opposed.
Once court proceedings have been issued, both parties should continue negotiating to try and resolve any issues in dispute prior to reaching a final hearing.
How can Hanne & Co’s property lawyers help?
Our property lawyers are on hand for advice on correctly renewing or ending a commercial lease, correct drafting and serving of notices, complying with deadlines, issuing of court proceedings and the tactical considerations for either party once court proceedings have been issued. We will provide clear guidance at each step of the process. Contact us now for any advice you need by calling +44 (0) 207 228 0017 or via the form below.
If you would like to discuss any of the above in more detail or to make an enquiry with our property team, fill out the form below or call us directly on +44 (0) 207 228 0017.
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