Granting a Lease Renewal

Are you a party to a commercial lease which is ending soon? Do you know which lease renewal procedure you will need to follow? Take care to get your lease renewal right as otherwise there can be very unexpected legal consequences

Are you a party to a commercial lease which is ending soon? Do you know which lease renewal procedure you will need to follow? Take care to get your lease renewal right as otherwise there can be very unexpected legal consequences

What is a Lease Renewal?

A lease renewal occurs when a lease term comes to an end and a new lease is granted between the same parties and of the same premises. The lease renewal process is very different depending on whether or not the lease that is being renewed had security of tenure.

What is the renewal procedure in respect of a lease that has security of tenure?

If a tenant has security of tenure it will be entitled to a new lease of the premises at the end of the contractual term.  The contractual term will also automatically continue unless and until it is ended in accordance with the provisions of the Act itself.  The procedure that should be followed for the lease renewal is complex with prescribed steps and time limits. Here is an outline of the procedure:

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a) Whether the landlord or the tenant is commencing the renewal process they should serve a notice on the other (or certain other parties) during the last two years of the tenancy.

b) The tenancy must then be terminated in one of the prescribed ways. Either the landlord serves a section 25 notice on the tenant or the tenant requests a new tenancy by serving a section 26 request.

c) If the Tenant has served a section 26 request which the Landlord wishes to oppose, the Landlord must, within two months after the tenant’s request is served, itself serve a counter-notice specifying the grounds on which the landlord is opposing the application for renewal. The landlord can only do so on very particular grounds.

d) The parties can then seek to agree the terms of the new lease. The majority of the lease, if not all of it, will usually be negotiated by the landlord and the tenant without resorting to court. If no agreement can be reached, the terms will be determined by the court in accordance with statutory rules and guidelines.

e) If the terms of the new lease cannot be agreed either party can apply to court for an order for the grant of a new tenancy. There are time limits for doing this which depend upon who initiated the lease renewal process. If no application is made by the end of the statutory period the tenant will lose its right to a new lease.

f) The court procedure will then be followed and eventually the court will make an order. If the application for renewal is dismissed, discontinued or struck out, the tenancy will continue for a period of three months and 21 days after the date of the dismissal, discontinuance or striking out of the proceedings.

g) If the court makes an order to grant a new tenancy the tenant has a period of 14 days in which to ask the court to revoke the order if it decides that it does not want to take a new lease on the terms that have been ordered. In the absence of such steps, the landlord will be required to grant and the tenant will be bound to take the new lease.

h) In most cases, if an application has been made to the court, the current tenancy will expire three months and 21 days after the court order has been made and the new tenancy will commence the following day.

What is the renewal procedure in respect of a lease that does not have security of tenure?

If a tenant does not have security of tenure but both parties wish a new lease to be granted, then they are free to negotiate on whatever terms they wish.  However, neither party has the right to insist upon a lease.  Usually, but not always this puts the tenant in a weaker negotiating position.

Problems can arise however if the landlord allows the tenant to stay in occupation without putting a new lease in place. The status of the former tenant’s continued occupation will be unclear but is likely to be as a tenancy at will, under an implied periodic tenancy or as a trespasser! The risk is that a periodic tenancy may give the tenant security of tenure under the LTA 1954.

If a new lease is not in place before the old lease expires, therefore, the landlord should:

  • demand possession of the property upon expiry of the lease to the tenant;
  • consider claiming double rent while the former tenant remains in occupation after expiry of its lease;
  • if the landlord would like to enter into a new lease, send a separate letter to the tenant at the same time as the open letter (stated to be without prejudice to the open letter), stating that the landlord does not intend to issue possession proceedings at court for a short period to allow negotiations for a new lease to take place; and
  • not demand or collect any payment (whether as rent, mesne profits or otherwise) in respect of any period after the lease has expired.

Any other approach may create a protected tenancy which will then have to be ended in accordance with the 1954 Act and will be subject to the right to renew!

We would always advise taking legal advice before undertaking a lease renewal procedure, whether inside or outside of the security of tenure provisions. Failure to properly consider and protect your legal interest, in either scenario, can lead to very unexpected consequences.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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