Lease Renewal notices - to serve or not to serve?

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26 November, 2019

This article examines what happens when a lease ends and the situations where it is beneficial to serve a notice under Part II of the Landlord and Tenant Act 1954 ("The 1954 Act").

We are often instructed by commercial landlords to serve 1954 Act notices after a lease has expired and negotiations have broken down, or the landlord wishes to oppose granting a new lease.

Often our first thought is 'I wish this client had contacted me sooner'.

What does the 1954 Act say?

The Act provides business tenants with the right to a renewal lease (at open market rent) on the contractual expiry of the old lease.

As a landlord, you can serve a notice under section 25 either offering a new lease (setting out proposed terms) or refusing a new lease on specified grounds.

A section 25 notice (which must give between 6 and 12 months' notice) starts the formal process of lease renewal proceedings - though in the vast majority of cases, no court proceedings are necessary.

What are the benefits of serving a notice?

The notice begins the lease renewal process and so sets a timescale within which the tenant can either agree a new lease, leave the property or else they must apply to the court.

If the parties decide they need more time, then an extension on the deadline can be agreed (in writing).

If the market rent for the property is higher than the passing rent then a landlord will want to bring forward the interim rent period. This is the period upon which the court has the power to increase the rent. Without a section 25 notice, a landlord cannot increase the rent until a new lease is entered into (if at all).

It is also a pre-cursor to refusing a new lease if that is the landlord's intention.

What are the benefits in waiting?

If the open market rent is less than the passing rent, and the landlord does not need any future certainty, then it may be a better idea to wait.

When to take advice

A commercial landlord should consider their position around 12 months before the contractual expiry of the lease. The landlord should think about what they might want to do with the property after the lease expires, and if appropriate discuss it with the tenant. At this point you should take legal advice, especially if you want to refuse the tenant a new lease. You should also take advice from a surveyor as to the open market rental value of the property and /or any dilapidations which need addressing.

For more information contact Laura Hallett Lea in our Dispute Resolution department via email or phone on 0333 207 1141. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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