A commercial lease is a legal agreement between a landlord and a tenant, which grants the tenant the right to occupy a commercial property for a specific period in exchange for rent payments. When the lease term comes to an end, the tenant may wish to renew the lease to continue operating their business from the same location. This process is known as a lease renewal, and it involves several considerations that both parties must understand.

One of the most important considerations in a commercial lease renewal is the security of tenure. The Landlord and Tenant Act 1954 (LTA 1954) provides commercial tenants with a statutory right to renew their lease at the end of the term, subject to certain conditions. This right is commonly known as security of tenure, and it aims to protect tenants from being evicted from their premises without a reasonable cause.

Under the LTA 1954, a commercial tenant has the right to apply for a new lease to the court if their landlord does not agree to renew the lease on the same terms. The tenant must serve a written notice on the landlord, known as a section 26 notice, at least six months before the lease’s end date. The section 26 notice sets out the tenant’s proposal for the new lease terms, including the rent, length of lease, repairs, and other relevant details.

Once the section 26 notice is served, the landlord has two options. They can either agree to the tenant’s proposed terms, or they can serve a counter-notice, known as a section 25 notice, within two months of receiving the section 26 notice. The section 25 notice sets out the landlord’s proposal for the new lease terms, which may be different from the tenant’s proposal. If the landlord fails to serve a section 25 notice, the tenant can apply to the court for a new lease on the terms set out in their section 26 notice.

If the landlord serves a section 25 notice, the tenant has two months to either accept the landlord’s proposal or apply to the court for a new lease. If the parties cannot agree on the lease terms, the court will determine the terms of the new lease based on several factors, including the market rent, the length of the lease, and the repairing obligations.

It is important to note that there are some exceptions to the security of tenure under the LTA 1954. For example, if the tenant has breached the lease terms, the landlord may be able to oppose the renewal of the lease on the grounds of the tenant’s conduct. Also, if the property is being used for certain purposes, such as mining or agriculture, the LTA 1954 may not apply.

In conclusion, commercial lease renewals are a complex process that requires both landlords and tenants to understand their rights and obligations. The security of tenure under the LTA 1954 is a crucial consideration that provides commercial tenants with a level of protection against eviction. However, serving section 25 and 26 notices and negotiating new lease terms can be a time-consuming and challenging process. Therefore, seeking professional advice can help both parties navigate this process and achieve a favourable outcome.

If you require professional assistance with a commercial lease renewal our team of Chartered Surveyors and agents are able to advise throughout the process. Get in touch with Hootons today to see how we can help.