Commercial/Business Leases: What happens at the end of the Lease Term? Part 1

If a business tenancy is reaching towards the end of its lease term, then there may be several options available to the Landlord and the Tenant.

The options are primarily determined by the application of the Landlord and Tenant Act 1954 (the “Act”). If this Act applies to the lease, then the lease cannot be ended and the business tenant be thrown out of the property. In this case, the Tenant will have the right to renew the lease at its end in certain circumstances.

Below is a look at the protection offered by the Act and how it works in favour of the business tenant and the rights of the tenant for lease renewal, and what landlords need to be aware of.

The Landlord and Tenant Act 1954 – Protection for the business tenant

The Act provides a strict regime under which business tenants are given security.

Historically, business tenancies had longer lease terms. However, shorter terms are becoming increasingly common. For this reason, more and more landlords are excluding the provisions of the Act. The procedure for exclusion used to require obtaining a court order, but this has been simplified to require only some basic documentation to be prepared in its place.

As a result, many prospective tenants are being faced with a proposed new lease which is to ‘contracted out’ of the Act. This means that they will not have the protection given by the Act.

Nevertheless, many existing business leases still have the protection of the Act, and there are many prospective tenants of new leases who want to ensure that the lease will not contract out of the Act.

The purpose of the Act is to provide tenants who are actually in a premises with reasonable security of tenure. However, even where a lease is protected by the Act, circumstances may occur whereby the business tenant loses the protection or security provided by the Act. In particular, if the tenant can no longer use and occupy the premises for the purposes of their business and it is left empty for a period of time.

Ending a Lease protected by the Landlord and Tenant Act 1954

If a business lease has the protection of the Act, it will not automatically determine on its expiry date. This is often a confusing issue for both landlords and tenants, and in these circumstances, the expiry date can appear to be misleading. For example, if a lease is granted to a business tenant for a term of 10 years in 2010, it does not necessarily mean that the lease term will end in 2020. The lease may carry on indefinitely until one of the three procedures afforded by the Act triggers the end of the lease. Tenants therefore need to be aware that the same rent will need to be paid after the ‘expiry’ date in the lease has passed, unless one of the following legal procedures is followed:

  • Notice by the Landlord
  • Notice by the Tenant to quit
  • Notice of Requirement of New Lease or Notice of Renewal of Lease

In part 2, I will look at the above procedures in more detail.

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