Renewing your commercial property lease

An essential aspect of business is having a property from which your daily operations are carried out. Important factors such as location, convenience for both employees and clients, as well as comfort should be considered when deciding on a property - and if you believe you have found the perfect premises, you should take steps to keep hold of it.

As part of your corporate planning, it is important to review whether you will be required to move at the end of your property’s lease well in advance. Unfortunately, however, sometimes the process of renewing a lease can be complicated and stressful.

This guide will take a closer look at commercial property leases, providing advice on renewal and how to avoid common pitfalls that some businesses fall into.

About commercial property

Commercial properties in the UK can be divided into two categories:

• Parties benefiting from the security of tenure provisions specified as part of the Landlord and Tenant Act 1954
• Those that have been expressly excluded from the Act

If you are unsure whether you have security in place or not, we would recommend that you seek advice from a legal professional. However, regardless of whether you have security or not, it is best to think about your options between one or two years before your commercial lease expires, of course, depending on the size of your company.

The Landlord & Tenant Act

Simply put, the Landlord & Tenant Act gives the commercial tenant the right to renew its lease of the premises it occupies for the purposes of its business. If the statutory renewal process detailed in the Act has not been started by the lease expiry date, the lease will continue automatically, meaning the tenant is able to continue their occupation on the same terms. Then, if they want to vacate, it may do so on giving at least three months’ notice.

In cases where the lease of the premises continues automatically, the tenant is entitled to look for a new lease with an open market rent - something that can be beneficial, particularly if rents are decreasing, or if the tenant wants to be certain that the landlord will not make attempts to end the tenancy.

Requesting a new tenancy

When it comes to requesting a new tenancy, quite often, it is best for business owners to think about what it is about their current premises that they value. If your mind is not yet made up, keep your options open, opting to wait until you have made up your mind before starting the renewal process. On the other hand, for those businesses that are certain about securing a longer, fixed term then starting the process is recommended.

The renewal process has been outlined in further detail below:

• The process begins after the tenant has requested a new lease, which will determine the date for the commencement of the new contract. In some cases, this can be as soon as the day after the contractual expiry date, or it could be months in advance
• Tenants must provide between six and 12 months’ notice to the commercial property landlord before the start of the new lease. The request should state that the tenant’s proposed terms - including rent, term length, and the possible insertion of break clauses

Finalising the new lease

When the tenant has started the renewal process, the landlord has a two-month period in which they can dispute it. However, if they are happy to renew, the parties have a window of time to negotiate the terms.

Usually, the majority of uncontested lease renewals are negotiated between the parties at a meeting between opposing surveyors - but, if the parties are unable to agree new terms, they may apply to the Court to decide the terms.

In cases where an application has not been made to the court before the last day of the lease, the contract will terminate. Once security has been lost, the landlord is entitled to possession - something that can have disastrous consequences for business owners.

Should you change your mind about the renewal and wish to pull out of the process, you can do so. However, this depends on the stage you have reached, as three months’ notice is required. If legal proceedings have already started, you may be forced to pay the landlord fees.

In the meantime

There are several steps commercial property tenants can take in order to protect themselves against complicated legal processes. These include:

• Checking when the lease expires
• Determining whether you have rights under the Act
• Taking time to think about your renewal strategy at least one or two years in advance