Landlords or tenants can ask this question, on any type of commercial property, there is usually a lease in place that sets out how long the tenant has possession of the property for. The end date of the lease is the lease expiry, and therefore what can happen when a commercial lease expires?
From a tenant perspective, physical premises could be vital for the business, but situations can change. But there are two options for the tenant when their lease expires.
Option 1 – remain in the property and negotiate a new lease.
Option 2 – vacate the property and give possession back to the landlord.
Both of these options, involve processes and legal advice should always be sought, alongside working with a chartered surveyor such as Wheeler & Lai Chartered Surveyors.
Type of Leases
Before exploring the options, we have to briefly look at leases that are broadly in place in England, which affects what happens at the end of a lease. Leases can be contracted “inside or outside” of Part II of the Landlord & Tenant Act 1954 (LTA 1954).
Being contracted inside the Act gives “security of tenure” – automatic rights of renewal. However, you can be contracted outside of the Act, which is agreed prior to the lease completion and notices are usually served to the tenant explaining the exclusions of these rights.
A tenant with a “protected lease” is “within the Act” and has automatic rights to renew their lease. Under the Act, there is “security of tenure” and can only be brought to an end using the correct form of notice at the correct times. There are restrictions on repossession of the property under certain circumstances.
If both parties are in agreement to renew the lease, either party can start the process, and formal notices can be served and a time frame initiated. Informal processes can be made, with negotiations occurring with or without professional advisors. However, seeking professional advice can save you money and headache in the long term.
A lease which is “outside the Act” does not have security of tenure, and the tenant is more vulnerable to losing their business premises at the expiration of the lease. There is no automatic right to renew, and the landlord does not need to renew the lease.
When the tenant is looking to vacate their property, they can either vacate on the expiration date without providing notice. Or serve a Section 27 notice, which gives 3 months’ notice if they are “holding over” or on a periodic tenancy. Such notices are irrevocable and, if your lease was protected and you serve a notice to quit, you will irrevocably surrender your security of tenure.
When deciding to give up your lease and property, you must follow your lease obligations; you must give up the property in accordance with the terms of the lease, such as repairing obligations need to be complied with. Dilapidations is a consideration for either party to consider when tenants are looking to vacate a commercial property.
From a landlord perspective, they will need to know if their lease is “protected” or “unprotected” from the security of tenure provisions of the Landlord and Tenant Act 1954.
For a landlord with a tenant on a lease that is “Outside the Act” and they do not wish to grant security of tenure, their actions before the expiry and after the expiration of the lease is important, such as accepting rent payments after the expiration of the lease. Legal advisors would be able to tell you how to proceed in order that tenant’s do not become protected tenants.
If you are in agreement to renew, then there are formal notices that can be served and time frames set. The tenant remains in place, and continues to comply with the lease obligations such as keeping up with the rent payments, insurance and upkeep. They would be “holding over” and in negotiations until a new lease is agreed. A new lease may mean a change in the terms, and the rent may be different too.
There are certain grounds in which can seek possession and not renew the lease of a protected tenancy, and the right notice must be served citing the grounds with evidence to support them. It is fair to say that there has been numerous case laws on this as disputes have arisen between landlords and tenants.
In order to avoid headache and heartache over the lease expiration, parties should make themselves aware of the lease expiration dates, give themselves sufficient time to review their business and plans, and start discussions early. Seek professional advice well in advance of a lease expiration date will give you time to prepare and find out the best way forward.
Speak to Rebecca or Sau-Wan today. We’re happy to help.
Please note that this is a simple overview, and lease expirations and renewals are complex matters for either party and professional legal advice should also be sought. We are not legally trained and cannot provide legal advice about commercial contracts such as leases.