A business’s premises are where day-to-day work happens, but that space may become a source of uncertainty when your commercial lease comes to an end.
Questions about whether you can stay and how much leverage your landlord holds can hit you all at once and you must know your rights before your lease expires.
Do you have the right to renew a commercial lease?
A commercial lease is a legal agreement that allows your business to occupy property for a fixed period and on agreed terms.
In the UK, the Landlord and Tenant Act 1954 provides many business tenants with important protection known as security of tenure.
If your lease is within the terms of the Act, you generally have the right to remain in the premises and to apply for a new lease when the current one expires.
This means that your landlord cannot simply ask you to leave at the end and must either grant a new lease or rely on one of the limited statutory grounds to refuse renewal.
However, not all commercial leases benefit from this protection and your lease may be contracted out of the Act.
If this applies, you will usually have signed a declaration before the lease began, confirming that you waive your automatic renewal rights.
If this is the case, your renewal will depend entirely on negotiation with your landlord. It can take six to twelve months to negotiate a new lease, so you should act sooner rather than later to avoid the uncertainty of being in occupation after your lease has expired.
If your lease is inside the Act, you can start the statutory renewal process by serving a Section 26 notice. Likewise, your landlord can start the process by serving a Section 25 notice.
The notice would set out the proposed terms for the renewal lease and must be served a prescribed period of time before the intended start date of the new lease.
Neither you nor your landlord is obliged to serve a Section 25 or 26 notice and there may be good reasons not to.
Your statutory rights do not prevent you from having informal discussions with your landlord and you may be entitled to remain in occupation beyond the lease expiry date.
Strict deadlines apply to statutory lease renewals and missing them can seriously undermine your rights to remain on the premises.
If renewal terms are not agreed by the notice expiry date, you may need to apply to the court to protect your right to a new lease.
Can my landlord refuse to renew?
Even when your lease has security of tenure, your landlord can refuse renewal but only for specific reasons set out in the Act.
These grounds include:
- Tenant breach – This includes persistent late rent payments or failure to comply with repair obligations.
- Redevelopment – Where your landlord genuinely intends to demolish or substantially redevelop the property.
- Landlord occupation – Where the landlord plans to occupy the premises themselves.
A landlord must follow a formal process and provide evidence when refusing a renewal, as refusal cannot be arbitrary.
If your landlord does refuse to renew, you may still have options.
What should you do if renewal is refused?
If your lease is protected by the Act and your landlord’s grounds are disrupted, you have the right to apply to the court for the grant of a new lease.
If your refusal is due to redevelopment or landlord occupation, you may be entitled to statutory compensation, which is usually related to the property’s rateable value.
How can you prepare for when your lease is ending?
Businesses should start planning 12-18 months before their leases expire and check whether their lease is protected by the Act.
You should consider whether the premises still suit your business plans and review your rent, repair obligations, service charges, break clauses and termination provisions.
Renewal can provide an opportunity to renegotiate terms and secure conditions that better reflect the current market or your business’s needs.
Our team can help manage your exit, renewal or holding over (remaining on the property after the lease expires) and negotiate more favourable terms if you are looking to continue your lease. We can also advise you on strategy regarding the relevant statutory notices.
With the right support, you can ensure your lease does not impact your business operations and you feel secure within your premises.
If you need help with commercial property, contact Juliet Rayner at juliet.rayner@mackrell.com or at 0207 420 4194.
