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What To Do When Your Commercial Lease Runs Out

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Whether it is a shop, factory, office space or warehouse, a solid commercial premises lease is an essential prerequisite to the ongoing success of many businesses.

If your lease is nearing the end of its term and you wish to remain a tenant, it pays to seek professional advice to ensure the new lease is secured swiftly and smoothly.

Protected and non-protected leases

Most commercial leases benefit from security of tenure under the Landlord and Tenant Act 1954 (the Act) which states that a business lease can be automatically renewed by a tenant, on similar but updated terms.

If a commercial lease is subject to security of tenure, the landlord can only regain possession under certain circumstances, including if:

  • the landlord requires the property back either for development purposes, or for personal occupation, or;
  • the tenant has a history of non-payment of rent, or has been in persistent breach of covenants, or;
  • the premises have been divided by subletting into several units, and the whole property would command a higher rent if let together under one lease.

If you have a protected lease, the landlord cannot dictate the new rate of rent.  If neither of you can agree on what the new rent should be, the tenant can make a court application to have the correct market value determined.

If, when signing your commercial lease agreement, you agreed to contract out of the Act, then you will not benefit from security of tenure.  The landlord can demand that you vacate the premises on the expiry of the lease, or if they decide to renew your agreement, offer onerous new terms, including grossly inflated rent.

Actions tenants should take when their commercial lease is about to expire

Regardless of whether you have a secure or unsecured tenancy, you should start thinking about your renewal 18-24 months before your lease expires and contact your landlord 8-12 months before the end date.  It is also a good idea to instruct a commercial property solicitor. They will examine your lease, explain your position and advise you on the best steps to take after discussing your future plans.

If you have security of tenure, once you trigger the request for a new lease, the landlord has two months to dispute the grant of a new lease on one of the grounds listed above.  If they are happy to grant you a new lease, negotiations on the new terms will commence.  Most commercial tenancies are renewed without complications after each party engages an independent valuer to assess the new rate of rent.

While new terms are being negotiated, you have full right to remain in the property under pre-existing terms if you have a protected lease under the Act.

Further risks for unsecured tenants

Even if the landlord agrees to grant a new lease to a tenant who has contracted out of the Act, after the end-date of the lease has past, they have no right of occupation.  Negotiation of terms and preparation of a new lease takes time.  If the landlord decided to renege on granting the new lease before it is signed, if the old tenancy has ended, they have full rights to demand you vacate immediately.  This is likely to be a catastrophe if no alternative premises have been sought.

Unsecured tenants should be negotiating with their landlord at least 12 months before their lease expires.  If an agreement is not on the horizon seven months before the existing lease expires, it makes good sense to sense to start negotiations on a new property in the background, to ensure you are not left in dire straits should you fail to negotiate a new lease with your existing landlord.

Final words

Renewing a commercial lease can be relatively stress-free if tenants start the process well in advance and obtain expert legal advice throughout the process.

At Bird & Co, our commercial law solicitors are property experts. We have years of experience helping clients through all aspects of the renewing their commercial leases, with customer service at the heart of what we do. If you are renewing a commercial lease, you need the experts at your side. Get in touch with us today on 01636 600 656.