‘Summer’s lease’, lamented Shakespeare, ‘hath all too short a date.’ Clearly something he should have considered at heads of terms stage. However, it is certainly true that for a landlord, even more than a tenant, nearing the end of a commercial lease’s term can be a headache.
The landlord may want to keep its tenant, or it may want the property back. The Landlord and Tenant Act 1954 sets out the procedure for this (section 38(A). Either way, the landlord must ensure it is well-advised of its options and its legal position.
Renewing a commercial lease
A question of security…
The first thing to consider, when considering a landlord’s position, is whether a commercial tenant enjoys ‘security of tenure’. That is whether, when the lease was taken, the tenant waived its usual legal rights of renewal. That’s something that can be quickly assessed by a legal advisor glancing over the lease, however, the consequences are fundamental.
If the tenant does have ‘security of tenure’, they may usually insist on a new tenancy at the now-current market rent. This right is opposable only on certain specified grounds, and even if those grounds are available to a landlord, the landlord may well have to pay compensation to the tenant for leaving.
If the tenant does not have ‘security of tenure’, then the lease is up when it’s up, and the tenant must either agree a new lease or leave.
Marching orders
If a landlord wishes the tenant to leave, it must make preparations well in advance.
A secure tenant must be given notice of the landlord’s intentions well in advance of the date the landlord wants them out. In many cases this notice must be of a minimum of six months, and must give a valid ground for opposing a new lease.
Even if a tenant is not secure, the landlord must be careful that no further tenancy arises unintentionally. If you have a tenant whose lease has expired, but who has not vacated, do not accept further rent from them.
Please don’t go…
A landlord who wants a tenant to remain is also well-advised to consider matters early.
The temptation is often to ‘let sleeping dogs lie’, and in some cases this may be the wisest course of action. However, if either an uplift in rent or a further fixed term of years will be sought, this needs to be settled. This should in the first instance be discussed with the tenant. If an agreement cannot be reached, then again notice (often of at least six months) will be required formally proposing new lease terms.
The final condition
Finally, whether or not a tenant is to leave, the landlord should protect its position in respect of the property’s physical state. In most cases, a tenant will be liable for any disrepair of the property, however, this will depend on the terms of the lease. Again, this should be addressed early, a tenant is easier to pursue while you still know exactly where they are!
In conclusion, a landlord should take advice, and do so well in advance of the term expiry. We at Nelsons are always available to help.
How Nelsons can help
If you require any advice in relation to renewing a commercial lease or any related matter, please contact a member of our Commercial Property team on 0800 024 1976 or via our online form.