Most – but not all – business leases are protected by security of tenure. However, there are still some leases which are ‘unprotected’, which has ramifications for both the landlord and tenant.
Maunder Taylor offer business lease renewals advice to clients in Barnet, and across North London and Hertfordshire. Here we explain the difference between protected and unprotected agreements, and what happens when the lease expires.
Most commercial property tenants will be covered by this type of agreement. As a general rule, all tenants have a protected lease unless there is a specific clause in it stating otherwise.
To qualify as a protected lease, the following criteria must be met:
- The tenant has exclusive possession of the property.
- The tenant occupies the property for business use only and pay a rent.
- The lease granted is for a fixed term.
Once the protected lease comes to an end, then the tenant has the statutory right to request a new lease on similar terms to the existing lease, subject to serving the prescribed Section 26 Notice.
Assuming the landlord grants the request, negotiations can begin immediately on any new terms. The previously agreed rental figure cannot be changed without the tenant’s agreement. Sometimes an independent valuation will be needed to determine the new rent figure.
Ending a Protected Lease
If nothing is done by either party, then the lease enters a ‘holding over’ period after the expiry date and the tenancy continues on the same terms, usually for a maximum period of two months.
If the tenant wishes to vacate the premises and the lease is in the ‘holding over’ period, the tenant must give three months’ advanced written notice to the landlord before they can move out.
If the landlord wishes to bring a protected lease to an end, there are a number of steps which have to be taken under the terms of the 1954 Landlord and Tenant Act. They must serve the tenant with a Section 25 notice (usually six to 12 months before the expiration of the existing lease) stating whether they want the lease to be renewed or not.
The main grounds for non-renewal are:
- The landlord wants to redevelop the property.
- The landlord wants to occupy the property themselves.
- Or the tenant failed to comply with the terms of the lease (usually by late or non-payment of rent).
Landlords can arrange for both parties to ‘contract out’ of the provisions of the 1954 Act by serving the tenant with a formal notice. It’s usually in the tenant’s interests to resist this, as it means they have many fewer legal rights; however, the leaseholder does have to acknowledge (in writing) that they are aware what forfeiting their protected status will mean. It’s important to note that, with unprotected leases, the tenant has no automatic right to renew or renegotiate.
Ending an Unprotected Lease
The situation is far simpler with unprotected leases. The tenant has no right of occupation once the existing lease’s end date arrives. If they wish to, a landlord can demand that the tenant vacates the property immediately and the tenant is legally obliged to do so.
Alternatively, the landlord can propose a rental increase, or alter the terms of the lease in another way; the tenant is free to accept these if they wish, or to move out.
Business Lease Renewals Advice in Barnet with Maunder Taylor
Whether you are a landlord or a tenant, you should ideally be thinking about your lease around 15 months before it is due to expire – whether you want to renew it (and on what terms). That will give you enough time to decide on your business’s future strategy, and to serve any notices you are legally required to.
As chartered surveyors with offices in Whetstone and Totteridge, we can act for either landlords or tenants, but we always recommend that any decision on lease renewal is based on negotiation. This should avoid any protracted and potentially costly disputes which can end up in court – although we are highly experienced in this area as well. For instance, if a lease renewal cannot be agreed, we can act as expert valuation witnesses if the case comes to either the County Court or a Tribunal.
If you would like to know more about our business lease renewals advice services, follow this link or call our Whetstone office on 020 8446 0011.