Commercial/Business Leases: What happens at the end of the Lease Term? Part 2

Following on from Part 1, in this article, we will look at the following legal procedures of ending a commercial lease that is protected by the Landlord and Tenant Act 1954 (the “Act”) in more detail:

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

Notice by the Landlord

This procedure involves a notice served by the landlord on the tenant.

The notice must indicate whether or not the landlord will oppose a renewal of the lease, and if the landlord does object to renewal, the notice must provide one of the reasons laid out in the Act, called the statutory grounds. These grounds are limited in number, and the landlord must be careful to chose the correct ground that applies to the circumstances. The two most common grounds used by landlords are the redevelopment of the premises and the landlord requiring the premises for the purposes of running its own business. The other grounds include non-payment of rent during the term, and the breach of a covenant in the lease (to repair or redecorate, etc).

The redevelopment ground is the more common, and there are regulations laid out by the act to prove that the landlord’s claim for redevelopment is genuine and necessary and there are strict rules which have to be observed. This ground is not always successful. This ground is most successful where the property is to be completely or substantially demolished or redeveloped. Where a landlord wishes to simply refurbish the premises the court may order that the tenant is offered a lease after the refurbishment works on terms that the court dictates.

Notice to Quit by the Tenant

If a Tenant serves a simple notice to quit the lease at the end of the term on the landlord then the lease will end. The courts have also ruled 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. However, it is important that the tenant checks the notice requirements contained in the lease, so that the correct notice period is given to the landlord, or the notice will not be considered sufficient.

Notice of Requirement of a New Lease / Notice of Renewal of Lease

A notice from the tenant that it requires a new lease will put the landlord on notice and it will then be up to the landlord whether or not it will oppose the renewal.

Again, if the landlord wishes to oppose the renewal, it can only rely on the statutory grounds listed in the Act (as set out in ‘Notice by Landlord’ section above).

If the landlord decides not to oppose the notice of renewal, then both the landlord and the tenant are open to the process of negotiation to try and agree on the new terms of the lease. The negotiations are often handled by the surveyors and valuers for the landlord and the tenant.

Although the Act does provide a structure for lease renewal terms to be determined by the court, it is no longer common practice for the renewal terms to be referred to and determined by the court. If a referral to the court for a decision is necessary, then a commercial property lawyer should be used.

Whether the renewal terms are determined by the landlord and tenant direct, by the court or the valuer, the starting point is usually with the existing lease. Valuers will recommend the rents by comparing similar locations.

Where an end or continuation of a commercial lease is being sought by one party, it is advisable to speak to an experienced commercial property lawyer.

Whether the renewal terms are determined by the landlord and tenant direct, by the court or the valuer, the starting point is usually with the existing lease. Valuers will recommend the rents by comparing similar locations.

Where an end or continuation of a commercial lease is being sought by one party, it is advisable to speak to an experienced commercial property lawyer.

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