Lease renewal FAQ
Renewal of business tenancies under the Landlord and Tenant Act 1954
1. What happens when my Lease comes to an end?
If you occupy the premises of a business carried on by you, or for those and other purposes, you should have the right to renew your tenancy when it comes to an end. There are a number of exceptions to this to which I shall turn later. The Landlord and Tenant Act 1954 allows the Tenant in this situation to renew his Lease at the market rent but otherwise on terms to be agreed between the parties. The maximum new term to which he is entitled is 15 years although longer periods can be agreed with the Landlord.
2. Is my Lease “contracted out” of the 1954 Act and what does this mean?
It is possible for a Landlord and Tenant to agree before entering into a commercial Lease that it will not continue when it comes to an end and the Tenant will have no right to renew. Until relatively recently such an agreement had to be approved by the court. If a Lease is “contracted out” there should be a clause in it confirming this and stating the date of the court order. The court order itself is usually kept with the Lease. If your Lease is contracted out you have no right to renew; it is purely a matter of negotiation what terms you may be able to agree with the Landlord after the Lease has come to an end.
3. What are my options if my Lease is not contracted out of the Act?
If you are sure that you wish to renew your Lease you can request the Landlord to grant one to you. This is called a Section 26 Request. You must give at least 6 and no more than 12 months notice of your desire for a new tenancy. The earliest you can serve a Section 26 request is therefore 12 months before the expiry date stated in your Lease. For example, if your Lease expires on 25 December 2009 the earliest date on which you could have served the request was 25 December 2008.
4. Can the Landlord take any action to prevent me serving a Section 26 Request?
Yes – the Landlord can serve a Section 25 Notice on you terminating your Lease on a minimum of 6 months’ and a maximum of 12 months’ notice. Accordingly, the earliest date on which a Landlord can serve a Section 25 Notice is the same as that on which the Tenant can serve a Section 26 Request.
5. I sublet part of the premises in my Lease. Will this stop me renewing it?
You must be in occupation of the premises in order to have the right to renew your Lease of them so you have no right to renew sub-let parts. You can serve a Section 26 Request for a new tenancy just for those parts where you are in occupation. Alternatively, if the sub-tenancy comes to an end and your Tenant moves out before your own Lease expires you will then be in a position to serve a Section 26 Request for the whole of the premises in the Lease. Even if you are only in a position to serve a Section 26 Request for part of the premises your Landlord can require you to take a new Lease of the whole of the premises. Alternatively the Landlord can deal directly with your sub-tenant in respect of those parts where you are not in occupation yourself – it is the Landlord’s choice. The same considerations apply to a Landlord serving a Section 25 Notice.
6. Although I run a business from my premises I also live in the upper parts. Can I renew my Lease under the 1954 Act?
The Act applies to any tenancy where the property is or includes premises occupied by the Tenant for the purposes of a business carried on by him, or for those and other purposes. The fact that you live in part of the premises does not therefore prevent your being able to renew your tenancy. However, there is a limit to the protection afforded by the Act and if your business use is merely incidental to your living in the premises the Landlord may well challenge your right to renew. It is a matter of fact and degree in each case.
7. Is there anything the Landlord can do to stop me renewing my Lease if I have that entitlement? Can he oppose it?
There are a number of specified grounds on which the Landlord can oppose your application for a new tenancy. These include redevelopment, own occupation by the Landlord and a history of breaches of the Lease terms. The most common ground of opposition is redevelopment. In order to successfully oppose the renewal of a tenancy on this ground the Landlord must prove an intention to demolish or reconstruct, or carry out substantial work of construction to the premises or a substantial part of them. In the case of substantial work of construction the Landlord must also demonstrate that the work could not reasonably be done without obtaining possession. In order to demonstrate this, the Landlord will need to obtain planning permission and any other relevant consents and arrange finance for the development, amongst other things. If a Landlord serves a “hostile” Section 25 Notice (or Counter Notice to a Tenant’s Section 26 Request) it is prudent to ask the Landlord straight away for evidence of his intention. This will enable you to make an early decision as to whether you are going to challenge the opposition or make arrangements to move elsewhere when the notice expires and your Lease comes to an end.
8. What is the procedure where a Landlord serves a Section 25 Notice
In order to protect your right to renew you must apply to the court for a new tenancy by the termination date stated in the notice. If you do not do so you will only be able to stay in the premises if the Landlord agrees. You should of course start considering what you are going to do as soon as you receive the Section 25 Notice, especially if it is hostile. It is however possible to agree to in writing with the Landlord that the time by when an application must be made to the court for a new tenancy can be extended.
Where the Landlord opposes renewal on the grounds of development (or indeed any other ground) it is usual for the court to consider this as a preliminary issue, if the Tenant does not admit that the Landlord has such an intention. If the Landlord succeeds in demonstrating that it has the required intention to redevelop the Lease will usually come to an end 3 months after the court hearing, unless some other arrangement is agreed with the Landlord. If on the other hand the Landlord fails to prove sufficient intention to redevelop, the new tenancy application will then proceed. If the terms of the new Lease cannot be agreed between the parties the court will determine them at another hearing. The court will set directions to deal with this to include the provision of a draft Lease by the Landlord and expert evidence on the rent and other terms to be included in the new Lease.
You will gather from this that the whole process of renewal, especially if it is opposed by the Landlord, can be quite protracted and costly. It is better by far to try and agree terms amicably with your Landlord although you should always bear in mind what you need to do to protect your position from a legal point of view.
9. Supposing I serve a Section 26 Request?
In this case the Landlord can serve a Counter Notice within 2 months setting out his grounds of opposition, if any, to granting you a new tenancy and his counter proposals for the terms of a new Lease. At this stage, as when served with a Section 25 Notice you will need to decide as soon as you can what you propose doing. If you still wish to renew your tenancy you must apply to the court by the start dated quoted in your Section 26 Request. Again, the date for this can be extended by agreement in writing between Landlord and Tenant.
10. Are there any advantages if I do have to leave the premises as a result of the Landlord proposing renewal on the grounds of redevelopment or own occupation?
The Landlord must pay compensation when you leave the premises as a result of hostile notice served by the Landlord on the grounds of redevelopment or own occupation. Compensation is calculated by reference to the rateable value of the premises. If you have been a Tenant for more than 14 years you will be entitle to twice the rateable value. Under 14 years and compensation is half that, just once the rateable value.
11. I want to renew my Lease. Should I go ahead and serve a Section 26 Request now or wait and see whether the Landlord serves a Section 25 Notice?
The longer the Landlord leaves it to serve a Section 25 the more the potential advantage there is for you by serving a Section 26 Request. If, say, the Landlord has not served a Section 25 Notice several months after he could first have done so you can serve a Section 26 Request giving the maximum 12 months’ notice to expire following the end date stated in your lease. The advantage here is that you will have the certainty of another year’s occupation and this will at the current rent; the later you serve a Section 26 Request the longer this rent advantage will apply.
12. Will the rent stay the same after the Section 25 Notice or Section 26 Request has expired?
The rent will stay the same unless either Landlord or Tenant has applied to court for an interim rent to be fixed. The earliest date when interim rent will apply is immediately following the expiry date in the Section 25 Notice or Section 26 Request. Interim rent will take effect from whenever an application for it is made but is not usually determined until the court deals with the main application for a new tenancy. It is usually fixed somewhere between the old and new rents, on a sliding basis. If the market rent is likely to be more that the current passing rent it is the Landlord who will wish to apply for an interim rent. The reverse applies if the market rent is likely to be lower than the current passing rent.