Business lease renewals – a guide

Commercial property leases make up a significant portion of expenditure for businesses, particularly in sought-after areas with a shortage of stock.

For this reason, it’s important that business owners understand regulations surrounding lease renewal to ensure that, once they’ve found a space that works, they can remain there.

Automatic renewal rights

Most commercial property tenants have the automatic right to renew their lease at the end of their tenancy before the space goes to the rental market.

This is safeguarded by the Landlord and Tenant Act 1954.

Under this Act, you can renew your lease at the end of its term unless your landlord chooses to specifically oppose it using a Section 25 notice – which carry limited legal grounds to oppose the renewal.

To do so, you must submit a Section 26 notice setting out your plans to renew your lease. Your landlord will then have two months to respond.

Either notice must be sent not less than six months and no more than 12 months before the lease is due to end.

When you don’t have automatic renewal rights

In some situations, you won’t have automatic renewal rights, typically because of either the nature of your business or tenancy, or because of landlord refusal.

Certain business tenancies do not hold automatic lease renewal rights, including:

• Mining and farming tenants
• Tenants on a fixed term of six months or less
• Tenants who have waved their right to renew
• Service tenants employed by the landlord

If your business comes under one of these criteria, you are not necessarily precluded from renewing your lease – the rights are simply not automatically applied.

Alternatively, your landlord may refuse to renew your lease, either because they want to use the property themselves or offers you a suitable alternative, or because you have breached your lease, for example through non-payment of rent.

Negotiating your lease

Your landlord may also present you with a Section 25 notice if they wish to renegotiate your terms.

Alternatively, you can include your request in your Section 26 notice, at which point you may request new terms yourself.

Whichever party has triggered the renegotiation of contract terms, you’ll need to consider the needs and obligations of each party to reach a satisfactory outcome.

You’ll need to negotiate:

• Rent price – balancing the rate requested by the landlord, what you can afford, local market rates and cost-effectiveness.
• Break clauses – allowing you to break your lease at a certain point before the end of the contract without additional costs or action.
• Lease length – this may have an impact on rent and your long-term business operations.
• Other obligations – some leases require tenants and landlords to maintain, for example, parts of the building, green initiatives or smart technology.

We can help you to negotiate your lease within the limits of commercial property and contract law while ensuring that your lease suits you and your needs.

We can also advise you on whether you and your landlord are acting lawfully and following all relevant procedures to protect your tenancy.

Do you need advice on commercial lease renewals? We can help – contact us today.