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As a commercial landlord or a tenant, there are some statutory procedures you must follow if you take certain actions under a commercial lease. One of these is a statutory right to renew a lease with security of tenure. The commercial tenant can carry out a statutory procedure when they wish to instigate lease renewal by using a section 26 notice. However, a commercial landlord can contest this. This article will explain three critical points about contested section 26 notices.
What is a Section 26 Notice?
A section 26 notice is a notice a commercial tenant uses to start the lease renewal process for their commercial lease. They can serve this on their commercial landlord, including the terms they suggest for the new lease. A commercial tenant can only use this notice when they have a protected lease.
A protected lease is a commercial lease that has security of tenure. This means the tenant has the right to automatic lease renewal when the lease reaches the lease term end date. They also have a legal right for the lease to continue on the same terms, or no worse, as the current lease.
Key Points About Contested Section 26 Notices
Below, we look at three critical points about contested section 26 notices in commercial leases.
1. What is a Contested Section 26 Notice?
A contested section 26 notice is where a commercial landlord disagrees with their tenant’s section 26 notice for lease renewal.
To contest a section 26 notice, a commercial landlord can:
- give their commercial tenant a counter-notice up to two months after they receive the section 26 notice; or
- compose a hostile section 25 notice with the reasons why they oppose lease renewal.
2. When Can a Landlord Contest a Section 26 Notice
An obvious and fairly straightforward reason is that a commercial tenant does not have the legal right to lease renewal, so they made a mistake by using one. For example, this may occur where the:
- commercial lease agreement contracts out of the Landlord and Tenant Act 1954;
- tenant is not occupying the property for business purposes;
- commercial tenant’s commercial lease agreement has a lease term of six months or less;
- tenancy is an agricultural tenancy;
- commercial tenant has a service tenancy; or
- lease is a mining lease.
A commercial landlord may also contest a section 26 notice where the commercial landlord relies on one of the seven legal, reasonable grounds to do so. This includes, for example, where the tenant has severely breached a lease term such as being consistently late with rent. A commercial landlord may also contest a section 26 notice because they disagree with the terms a commercial tenant suggests in the section 26 notice.
3. What to Do With a Contested Section 26 Notice
If a landlord opposes a section 26 notice, you could initiate court proceedings. However, the court cannot help where the application to the court is not made in the legal timeframe detailed in the section 26 notice. A court can either:
- decide the tenant must have a new lease so the landlord can no longer contest it; or
- agree with the landlord’s reason for contesting the lease.
A court can also order that the landlord pay compensation to the tenant if their commercial landlord contests the section 26 notice on the seven legal grounds where it means the tenant was not at fault. For example, if the commercial landlord opposes the renewal because they want to redevelop the commercial property.
This cheat sheet outlines what you should be aware of in your lease agreement.
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A section 26 notice is for a commercial tenant to use to start the lease renewal process in a protected lease. However, a landlord may contest this by refusing lease renewal. The landlord may contest the section 26 notice where the tenant has no automatic right to lease renewal, or the landlord relies on a legal ground to refuse renewal.
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