Commercial Lease Renewal - Automatic Right To Renew?13th Apr 2018
The procedure to renew a lease of commercial premises (and whether there is an automatic right to renew it) will depend on whether the original lease is protected by security of tenure provisions in Part II of the Landlord and Tenant Act 1954.
This Act was designed to protect the interests of tenants who have been in premises for a few years and have built up goodwill – but also to balance this against the interests of landlords.
Listed below are some of the situations where there is no automatic right to renew:
- leases where the tenant has agreed to contract out of Part II of the Landlord and Tenant Act 1954
- where there is a licence or a tenancy at will rather than a lease
- tenants with fixed-term tenancies of six months or less
- farm business tenants
- mining tenants
- service tenants employed by the landlord
- various other arrangements listed in section 43 of the Landlord and Tenant Act 1954.
Automatic Right to Renew – Lease Protected By Security of Tenure Provisions
If the lease affords security of tenure, then the tenant has a statutory right to request a new lease on substantially the same terms. The landlord can refuse to grant a new lease only by establishing one of a limited number of grounds set out within the Act.
Those grounds include:
- the premises being in a state of disrepair
- rent arrears
- other breaches of the tenant’s covenants
- offering suitable alternative accommodation
- the landlord's intention to redevelop
- the landlord's intention to occupy the property.
The landlord can specify more than one ground of opposition.
However, if no ground of opposition is specified in the section 25 notice or counter-notice, the landlord will not be able to oppose a lease renewal at a later date.
Once a ground of opposition has been specified, it cannot be changed for an alternative ground. Further grounds of opposition cannot be raised later.
If the lease is coming to an end of its contractual term and no notices have been served, then the lease will not automatically terminate at the end of the contractual term.
Instead it will continue on the same terms until the set procedure under the Act is followed – either to end the lease or to put a new one in place.
Despite being able to ‘hold over’ the original lease, it is often desirable to renew the lease. How you initiate the renewal process will depend on whether you are the landlord or the tenant:
- Landlord initiates – serve a Section 25 notice on the tenant
- Tenant initiates – serve a Section 26 notice on the landlord.
In either case you will have to set out the proposed terms (which must be substantially the same as the original lease) for the new tenancy. Strict time limits and procedures will apply.
Other factors may also have an effect – such as whether the parties can reach an informal agreement. If so, they could put a new lease in place without the need to follow the formal notice procedure.
Whether you are a landlord or a tenant, it is essential to take legal advice well before the end of a contractual lease term so that you can be properly advised on your options going forward.
No Automatic Right to Renew – Lease Excluded From Part II of the Landlord and Tenant Act 1954
Where the lease has been excluded from Part II of the Landlord and Tenant Act 1954 the tenant will not have a statutory right to a new lease. The tenancy terminates automatically and there is no automatic holding over.
Where it is desirable for a new lease to be granted, the landlord and tenant must enter into negotiations and complete the new lease before the existing lease expires.
- review the existing lease
- negotiate a new lease
- advise tenants of their rights to a new lease
- advise landlords of their right to challenge the right of renewal (where applicable)
- help landlords and tenants with service of notices and with the renewal procedure.
Get Expert Legal Advice
Coles Miller’s commercial property team is based in Poole, Dorset but helps clients all over the country.
For more information, download our guide to lease agreements and contact Partner and commercial property solicitor Kerry Houston-Kypta, 01202 355695.