What happens if my commercial lease expires?

 

 

Once a commercial lease has expired, the tenant will have 2 options: they can either remain in the property, or they can vacate. 

If they would like to remain in the property, firstly they need to establish whether their current lease is protected by the provisions of the Landlord and Tenant Act 1954.

Protected tenancies

For a lease to be protected, certain criteria must be met:

• They must occupy the property solely for business use;

• They must have exclusive occupation of the property; and

• The lease must be granted for a fixed term.

Unless expressly excluded in the lease, most commercial tenants are protected by the provisions of the Landlord and Tenant Act 1954 and will have security of tenure.  This means the tenant will have the right to remain in occupation (“hold over”) under the terms of the existing lease on the expiry of the contractual term.  The lease will continue to run until either the landlord or the tenant gives the other notice to end the lease.   The tenant also has a statutory right to renew their tenancy on similar terms to the existing lease. 

If the landlord has granted a tenant a protected lease, they cannot change the agreed rental figure without the tenant’s agreement.

If either party wants to be proactive before the expiry of the lease, then the landlord can serve a section 25 Notice (s.25 Notice) about 6-12 months before the lease expires (or during the holding over period) on the tenant which will either state that they will not oppose a new lease or that they wish to terminate the lease and not grant a new one.

If the Landlord is happy to grant a new lease, this will act as a trigger to start negotiating terms for the new lease – the starting point is usually that the terms will be as per the existing lease, save for rent.

However, if the landlord wishes to terminate the lease and not grant a new one, they can serve a s.25 Notice on the tenant to terminate, providing that they are able to prove one of the statutory grounds under s.30 of the Act.  There are statutory grounds for compensation for the tenant if the landlord satisfies one of the non-fault grounds not to renew the lease equal to the rateable value of the property (or twice the rateable value if the Tenant has been there for 14 years or more).

Alternatively, the tenant can serve a s.26 Notice on the landlord 6-12 months before the expiry of the lease (or during the holding over period) requesting a renewal of their current lease, by setting out proposed terms for the renewal for their consideration for negotiations to begin.

Unprotected tenancies

If the lease is excluded from the protection of the Landlord and Tenant Act 1954, the tenant will have no statutory right to remain in occupation beyond the expiry date of the lease.  The tenant will have been made aware of this before completing the lease and will have signed a statutory declaration beforehand, confirming you have been made aware of this. (The tenant will need to check your lease for this). The Tenant will therefore need to vacate the Property at the end of the term in the condition required by the Lease, unless the Landlord has provided confirmation that they can remain in the Property either under a new lease or whilst a new lease is negotiated.

Vacate the property

Alternatively, if the tenant wishes to terminate their lease after it expires, they have two options. They can either:

• Vacate the property on the expiration date without providing any notice; or

• Serve a s.27 Notice which is to be served 3 months’ in advance. 

If no notice has been served by either party, the lease will roll over the expiration date and carry on. However, both parties can terminate the lease after the expiration date by serving their notices.

It is important to note that there are strict timeframes in which you must respond to a notice and a deadline for which you must apply to the court before the notice period ends, please ensure you contact us as soon as you receive a notice and take advice on your commercial lease before serving any notices.

For more information, please contact commercial property solicitor, Kelly Lawton, on 0116 212 1079 or email klawton@lawson-west.co.uk.

Read more about the Lawson West Commercial Property team here.

 

Please note that this is a basic overview only and should not be construed or relied upon as advice. This summary is strictly confidential and should not be released to any third party without our express written consent, except in circumstances where required by applicable laws or regulation. Lawson-West Solicitors Limited accepts no duty of care to any third party in connection with this summary.

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