In Short
- Whether you can renew your commercial lease depends on whether it is protected by the Landlord and Tenant Act 1954.
- Protected leases give tenants a statutory right to remain in occupation and request a renewal, subject to limited grounds of refusal.
- Contracted-out leases end automatically on expiry, and renewal is entirely at the landlord’s discretion.
Tips for Businesses
Check early whether your lease has security of tenure under the 1954 Act and diarise key expiry and notice dates. If your lease is protected, follow the statutory notice process carefully, as missing deadlines can cost you renewal rights. If it is contracted out, start renewal discussions well in advance and seek legal advice so you understand your position and can plan for alternatives if needed.
Maintaining continuous occupation of the same commercial premises can be crucial to a business’ long-term stability and trading operations. Remaining in the same location can preserve customers, reduce relocation costs, and support operational efficiency. As your lease nears expiry, determine whether you have renewal rights. You should also identify the steps required to renew. The answer depends on whether the lease has, or excludes, security of tenure under the Landlord and Tenant Act 1954 (the 1954 Act). This article explores how commercial lease renewals work and how to protect your business and reduce risk.
The Value of a Commercial Lease
A commercial lease can be one of a business’ most valuable assets. Losing established premises can disrupt trading, increase relocation costs, and cause losses where you rely on a loyal customer base. This is common for businesses such as popular coffee shops with regular customers. You should carefully consider lease renewal rights and the rules that apply to your lease. This should be a key issue when negotiating your lease agreement.
How Does Security of Tenure Impact Lease Renewals?
Under the 1954 Act, certain business tenancies will obtain special legal protections and rights in respect of lease renewals. In particular, a lease which is protected under the 1954 Act will not end at the end of the term but continue automatically. The tenant may request a lease renewal, and the landlord must agree unless a limited statutory ground applies.
Continue reading this article below the formHow Does Security of Tenure Work?
This protection allows qualifying business tenants to remain in occupation after the fixed term ends. The lease continues unless the landlord or tenant serves legal notice to renew or oppose renewal. A tenant may also give notice to end the lease.
First, the landlord must serve a Section 25 notice stating any grounds for opposing renewal. Alternatively, the tenant may serve a Section 26 notice proposing the new lease terms. However, the landlord may oppose renewal only on limited statutory grounds, such as serious breach or persistent rent delay. The terms of the lease or an opposition to a renewal can later be challenged in court.
However, this tenant-friendly right will often not apply, as many landlords choose to exclude it entirely.
Renewal Procedure for Protected Leases
If a tenancy continues under the 1954 Act, the landlord or tenant must serve notice. The notice can oppose renewal, request renewal, or end the tenancy.
If your business wishes to renew its lease protected under the 1954 Act, there are specific steps and timeframes to follow.
In short:
- a landlord may serve a Section 25 notice to oppose renewal and set a lawful termination date. The tenant must then negotiate with the landlord or apply to court to challenge the decision; and
- a Section 26 notice is served whereby the tenant sets out the proposed terms for its renewal lease.
Once one party has served one notice, the other party cannot serve a competing notice. As such, if your landlord issues a Section 25 notice, you will need to work under that procedure.
Negotiations must also adhere to stringent timeframes and processes. If the parties do not reach an agreement, either may apply to the County Court to determine new lease terms. They may instead agree in writing to extend the court deadline before it expires.
As a tenant, you must meet the required timeframes. Failure may cause you to lose renewal rights and end the lease. You also need to ensure that your notices contain all the information prescribed by the 1954 Act.
Throughout the process, your business should meet all lease obligations. You should maintain clear written communication and record all key dates.
Renewal Procedure for Unprotected Leases
Many modern commercial leases are contracted out of the 1954 Act altogether. This is lawful provided that the landlord follows the correct, formal contracting-out process. To contract out validly, the lease must exclude the 1954 Act protection, and the parties must follow a statutory procedure. First, the landlord must serve a formal warning notice on the tenant:
- If at least 14 days pass before the lease is granted, the tenant must complete a simple declaration; or
- If 14 days cannot be given, the tenant must sign a statutory declaration before the grant.
Once this process is completed, the tenant will have no security of tenure, and the lease will end automatically on the specified expiry date without any right to renewal. Most landlords prefer the security of a statutory declaration, so this is the process most commonly adopted.
When a lease has been contracted adequately out of the 1954 Act, your business will lose the statutory right to remain in occupation after the term ends. In these circumstances, your lease renewal prospects will depend entirely on commercial negotiation with your landlord.
If your lease is not protected by the 1954 Act, you should begin lease renewal discussions early – particularly if location continuity is essential. Demonstrating reliability as a business tenant, evidence of timely rent payments, and a positive contribution to the property may help strengthen your negotiating position. However, any renewal will be at the landlord’s discretion, and your landlord may refuse a renewal. It is sensible to seek legal advice on your lease agreement before you enter into it, so you are aware of your renewal rights from the outset and can plan accordingly.
Legal Advice on Your Lease
It is crucial to fully understand whether or not your business has the right to renew its lease – especially where your premises are business critical. Lease renewal rules under the 1954 Act can be complex – particularly given the strict statutory procedures involved, formal notice requirements and time limits. It is therefore crucial for your business to seek legal advice well before the expiry of your lease term to confirm whether the lease benefits from protection, ensure any notices are adequately served, and help safeguard your commercial position.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Key Takeaways
Your business’ right to renew its lease will depend on whether the lease is protected under the 1954 Act. Protected leases grant a valuable statutory right of security of tenure, but contracted-out leases end automatically on expiry and can be renewed only by agreement with your landlord. If your premises are valuable to your business, it is vital to take early legal advice to confirm your lease status, understand your rights and navigate the lease renewal process correctly.
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Frequently Asked Questions
If your lease is protected, your business has a legal right to remain in occupation once the fixed term ends and to request a new lease.
If your lease has been contracted out of the Landlord and Tenant Act 1954, you do not have an automatic right to renew. Renewing your lease will therefore depend entirely on negotiations with your landlord. You should plan ahead and start negotiations early if you wish to stay on, especially if your location is crucial to your business operations.
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