A tenant’s legal position when their commercial lease expires will largely come down to if the lease adheres to the Landlord and Tenant Act 1954. Commercial tenants normally stay in a property when their lease has expired either because they are still in negotiations with the landlord for a new, renewed lease or they have an informally agreed with them to remain there.
No matter if a tenant has a protected or unprotected lease, their legal status will be influenced by their personal situation and circumstances. Key factors include the status of the lease in relation to the Landlord and Tenant Act 1954, if the tenant is continuing to pay rent, and if they are having discussions with the landlord for a new lease.
In any case, it is essential that they understand their rights, risks, and the appropriate steps to take so they can secure the best outcome for their company. Our experienced solicitors in Newcastle can help you if your commercial lease is due to expire.
Guidance surrounding renewing or ending a commercial lease agreement is out there for tenants who are a year or more from the end of their lease and want to renew, tenants that have been given a Section 25 form by the landlord but hope to renew, or tenants that are looking to end their lease.
What are the different types of commercial lease?
Leases that are protected by the Act have the safety net of tenure, meaning their rights are significantly strengthened if their lease expires. As long as they carry on paying their rent, commercial tenants on protected leases can decide what happens when the lease expires as it will change into a periodic tenancy and continue to be protected by the Act. However, there are steps landlords can take to end the lease and tenants might want to adjust the terms of them staying in the building. In these situations, a series of challenges could arise for the tenant.
Excluded leases from the Act have significantly less legal protection than protected leases. However, they do still have some rights and there are things tenants can do to get to a good result, depending on what their intentions are if the lease expires.
Unless they are purposely left out of the agreement, the majority of commercial leases are covered by the Landlord and Tenant Act 1954. Through the Act, commercial tenants will still have the right to remain in the building under the same conditions as stated in the initial lease if the standard renewal process did not kick in upon the lease’s expiry date. The lease will turn into a periodic tenancy and 3 months’ notice will be required by the tenant before they move out of the property.
The Act also protects tenants on a periodic tenancy when they are seeking a new lease with an open market rent. This can be an option if there are dips in rental prices across the market. Before committing to a new lease, the tenant should check that it will be covered by the Act so they can keep their legal protection if the landlord should attempt to end the tenancy. A new lease can be granted by the courts if the tenants go down this route after a landlord refuses to renew a lease.
The only time landlords can take away a tenant’s renewal rights when they are protected by the Act is if the landlord gives the tenant notice via a Section 25 form and has evidence that warrants them taking back the property. Some examples of this evidence include:
- The tenant is always late with their rent
- They haven’t made repairs to the property (if they are obligated to do so in accordance with their lease)
- They have breached on or more lease obligations
- The landlord intends to move into the property
- The landlord either wants to complete extensive work on the building or demolish it
- The commercial lease is part of a bigger property, and the landlord wants to let out the entire property
- The landlord can offer the tenant a different premises that suits their needs
It’s often hard to prove even the most common reasons for serving notice on a commercial tenant. This means commercial tenants with protected leases are in a powerful position if they want to stay in that property.
Unless the landlord has gone through the protocol of arranging both parties “contract out” of the Act’s cover before the lease was signed, commercial leases are protected automatically. For contracting out to be effective, the landlord has to serve a formal notice to the prospective tenant, the tenant must declare that they understand the rights they are relinquishing, and the removal of the Act must be written into the lease before either party signs it.
There is a loophole here in that if the tenant can show that the criteria was not met by the landlord, they can still claim rights as part of the Act. However, if everything was completed correctly, the lease won’t be covered, and the tenant won’t have automatic rights to continue occupying the property or renew the lease when it expires.
If you’re looking for help with commercial conveyancing or any other legalities and paperwork relating to commercial property in Newcastle, then Toomey Legal can help. Our team have extensive experience and knowledge of commercial property and can help to ensure the best outcome for both landlords and tenants. Contact us to discuss your specific needs.