Business Lease Renewals

These types of renewals can be a very tricky and costly exercise if not completed correctly. Both a Tenant and Landlord can initiate a lease renewal by serving the required notice on either party.

The Landlord may serve a section 25 Notice on the Tenant for renewal of the Lease stating that it is not opposed to the renewal and also setting out its proposals for the new lease. Timing is essential when serving the notice, if the notice is served too early or late it may be defective and therefore cannot be relied upon. It is critical the Notice is not served more than 12 months before the termination date and not less than 6 months before the said termination date. There is a prescribed form as stipulated by the Regulatory Reform Order relating to Business Tenancies that must be used in these matters as it provides the tenant with all relevant information relating to the notice.

It must also be remembered that the terms proposed by the Landlord under the Section 25 Notice are not binding and are for discussion purposes only; they can be negotiated by either side during the course of negotiations. The Section 25 Notice is designed to end a tenancy and therefore the Tenant needs to act very quickly to deal with the matter.

If a deal cannot be reached within the relevant time scale either party by consent can extend the time period to enable negotiations to continue between themselves, though it must be remembered that what ever rent is ultimately agreed or ordered by the court will apply to any period after the termination date of the lease if it continues past that date. This new rent will then apply to any period past the termination date and must be paid to the Landlord as rent. The normal rent will continue to be paid to the Landlord in accordance with the original lease until such time as the new lease is granted.

A Tenant may serve a Section 26 Notice on the Landlord to renew the lease no later than 6 months and no earlier than 12 months before the proposed commencement date of the new lease. Again, there is a prescribed format for the Notice that is similar to the Section 25 Notice. It is important that the Tenants proposals are either added to the Notice or at the very least annexed to it. If the Landlord is not opposed to the renewal then negotiations will happen in the usual way. If however, the Landlord is opposed to a new lease then it must serve a counter notice on the Tenant within 2 months of receiving the Section 26 Notice.  

If negotiations are unsuccessful either party may apply to the court to determine the terms of the new lease. The Landlord may apply either if he opposes the lease or if it is unopposed, the latter is usual if negotiations are unsuccessful or unusually protracted. Once the Landlord has issued proceedings it cannot withdraw the application without the Tenant’s consent.

If the Tenant does not wish to renew the lease after the Landlord has issued proceedings it may be liable for the Landlords costs. It is also pertinent to remember that proceedings can only be bought before the expiration of the date given in the Section 25 Notice or the Section 26 Notice.

The court has limited powers of renewal of Business Tenancies; it is only able to renew a lease for up to 15 years and on terms similar to those already in the original lease. The Court will then Order a rental based upon open market rent for the premises. The Court can also Order that rent reviews are added to the lease depending upon the market norms.

It is clear from the outset that the procedure for renewal can be complex and it is important that the correct procedure is followed and that time limits are adhered to strictly as there is no room for error. The smallest oversight can have a major impact upon you and your business. 

Jagdeep Sandher, Solicitor

jsandher@astonbond.co.uk