Renewing the lease – protected under the Act or not.
Under Part II of the Landlord and Tenant Act 1954 (The Act), a tenant occupying business premises generally has the right to renew its lease when the lease comes to an end. The landlord can only object to the renewal on certain legal grounds (which are outlined below).Any business lease that has the protection of the Landlord and Tenant Act 1954 incorporated into it will not automatically end on the expiration of the lease. It can potentially run on indefinitely until one of the four trigger points occur with rent still being paid at the same rate as was paid during the lease term.
However, the parties to a lease can agree before it is granted to exclude it from the protection of the 1954 Act, in which case the tenant will have no automatic right to insist on a new lease at the end of the term and can only remain in occupation with the landlord's agreement. Whether the Act is excluded or not will usually be made clear from the Agents Heads of Terms. An alternative way is for the landlord to serve a notice on the tenant that he wishes to exclude the 1954 Act from the lease and will need the tenant to acknowledge receipt by signing a declaration. This should be done 14 days before the lease is due to expire.
Renewing the lease – protected under the Act.
Things for a landlord to consider first: -Has the tenant who is seeking a renewal of the lease breached any of the terms within the lease prior to given his notice for renewal?
If the tenant has previously breached a term of the lease then the landlord may consider that he no longer wants the tenant to stay within the premises and can give the tenant notice that he objects to the renewal. There must however have been a serious breach.
Be careful though, if a breach has occurred which you are aware of and you have done nothing about, it may be deemed that you have accepted the breach in which case you will not be able to rely on it as a ground for objecting to renew the lease. Each case is to be viewed on its individual facts.
The reasons for objecting to a renewal of a lease are laid out in the 1954 Act and are as follows: -
- The tenant has failed to pay his rent on one or more occasions during the term of the lease;
- The tenant has breached the covenant within the lease which refers to repairing or maintaining the property;
- The tenant has made other substantial breaches or not kept within the obligations of the tenant in his use or management of the holding;
- The Landlord has offered and is willing to provide or secure alternative accommodation for the tenant having regard to the nature and class of his business and to the situation and extent of, and facilities afforded by, the holding;
- The Landlord wants possession of the property to either re-develop or to use for his own purpose to set up a business; or
- Where the current tenancy was created by sub-letting of part of the property and the Landlord can show that he can obtain more rent by letting out the property as a whole, in view of this the tenant ought not to be granted a new tenancy.
If there is a dispute as to the state of the premises then you may wish to seek the advice of a surveyor before deciding whether or not to renew the lease.
You also need to be aware that some landlord’s may use the renewal as an excuse to increase the rent payable for example, “I will not renew the lease unless you agree to paying a rent of X”. This is not allowed.
Tenant’s Notice to Renew
Business tenants have an automatic right to renew their commercial lease following the end of their previous lease according to the protection given in the 1954 Act. However, the tenants should notify the Landlord of their intention to renew the lease by given them notice of their intention 12 months before the lease is due to expire.When the tenant gives the landlord notice, the landlord is then given a fixed period to either agree the renewal or to object to it. If he wishes to object he must provide the tenant with one of the statutory reasons listed above.
Notice is particularly important when the lease is not protected by the 1954 Act because tenants will not have an automatic right to renew the lease and can therefore be evicted once the lease expires.
Tenant’s Notice to Leave
A tenant may also give the Landlord notice that he wishes to leave the premises and end the lease on its expiration date and this needs to be given 12 months prior to the expiration of the lease. He does not need to give the landlord any reason as to why he wishes to terminate the lease.Should a tenant give notice that he wishes to vacate the premises then you will need to read through the lease to make sure that he has complied with all terms, for example there is often a term in the lease that the tenant before vacating he will decorate and repair any damage caused so as to be in the same condition as it was when he first moved into the premises.
Landlord Notice to Renew
A landlord has to give a tenant notice that he wishes to renew the lease 6 months before its expiration. He should within the notice inform the tenant of any amendments he wishes to make to the previous lease.The tenant then has a fixed period to negotiate those terms with the Landlord in the hope that an agreement can be reached. The amendments sought are usually with regards to rent or the duration of a lease. Tenants must be careful however as some landlord’s may take this opportunity to impose new more onerous terms within the lease.
If you do not agree to a term of the new proposed lease then tell the landlord during the negotiation period. If the terms can still not be agreed then it is possible that both the landlord and the tenant instruct surveyors to negotiate the terms for them. Should the terms still not be agreed then the matter can be referred to Court for the Judge’s approval.
If agreement cannot be reached with regards to what rent to charge then this can be negotiated by a surveyor or valuer but obviously this will incur further costs. They will suggest a rent to charge by looking at comparables i.e. other rents in similar locations, and make their decision based on those figures.
NOTE: The court should only be used as a last resort in disputes surrounding lease terms.
Landlord’s Notice to Terminate the Lease
A Landlord is able to give a tenant 6 months notice, prior to the expiration of a lease, that he wishes to terminate the lease and would not like to renew it. He can do this by completing a similar form to above but will have to include a legal reason as to why he will not renew the lease should the tenant want to. The Landlord’s reason for not wanting to renew must be genuine i.e. if for development purposes you must have already sought planning permission to be able to rely on this point.If the tenant is dis-satisfied with the reasoning, he can then seek the Court’s opinion on the matter within the specified time limit who will then make a decision as to the reasoning, taking into account the protection that is given to tenants under the 1954 Act, should the Act be relevant to this lease.
Alternative
In addition to the methods for terminating a lease described above, it has also been ruled by the Court’s that if a tenant leaves a premises, hands back the keys to the landlord and stops paying further rent, then this will be generally viewed as an acceptable termination of the lease if at the time of expiration of a lease.For further advice you can contact Henry Preston on 01326 318900.
This only provides a generic outline of the law as at 23 April 2010, and does not apply to every factual situation, and therefore it might not apply to your situation. You must obtain specialist legal advice on the facts of your individual case before you take any action, and as a result Preston Goldburn Solicitors cannot be liable for any losses you suffer as a result of failing to obtain your own specialist legal advice.
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