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When a commercial tenant and landlord have a lease, the agreement will detail each party’s rights and obligations. For example, it will describe how much rent the tenant should pay, the contractual terms, and each party’s repair obligations for the premises. However, legal rules may apply to commercial leases, which might not be in the lease agreement. For instance, a lease might be a protected lease with security of tenure from the Landlord and Tenant Act 1954. This article will explain the court’s role in a protected commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
What is a Protected Lease?
A protected lease is a lease with security of tenure. This is a legal protection found in the Landlord and Tenant Act 1954. It protects a commercial tenant when the lease reaches the end term date, allowing the lease to renew on the same terms automatically.
Whilst a protected lease offers the legal automatic right to lease renewal, a landlord has limited legal grounds to refuse this. There are also legal procedures associated with protected leases, which the landlord and tenant must follow. Accordingly, a court can play a role in a protected lease.
Court’s Role in a Protected Lease
Where you have a protected lease, a court can play a role when parties disagree on any new lease provisions or if a landlord refuses to renew.
Deciding on Lease Terms
When a protected lease automatically renews, there is an opportunity for either the commercial landlord or tenant to negotiate different lease terms. The best way to do this is through informal negotiations. Alternatively, parties to a lease can present the other with a notice which details the suggested terms. If a landlord does this, they use a Section 25 Notice, and a tenant will use a Section 26 Notice. Where parties cannot agree to new terms, either can apply to a court to decide the new lease terms.
A court can also decide the rent amount of the new lease at lease renewal. This should reflect the market value of the property. When the court chooses the rental amount, there are specific factors they cannot take into account, such as:
- that the tenant currently occupies the property;
- the business goodwill of the tenant; and
- any improvements made by either the commercial tenant or their predecessors over the past 21 years, apart from required improvements to the lease.
The court will also decide other lease terms by:
- considering the current lease terms; and
- looking into the circumstances of the lease.
When considering the other terms of the commercial lease, a court can decide to add a rent review clause to the new lease.
Hearing a Lease Refusal
If a landlord wants to refuse automatic commercial lease renewal, they have seven potential legal grounds. Some of these grounds allow a court to play a role, as follows:
| Ground B | This ground is where a landlord refuses renewal based on regular late rent payments. When a landlord relies on this ground, the court ultimately decides whether to order a new lease. The court will primarily look at the likelihood of prompt rent payments in the future. |
| Ground C | A landlord will advance Ground C where a tenant is in breach of the lease. When deciding whether to order a new lease, the court will consider the following: + breach circumstances; + the tenant’s conduct during the lease; and + if there has been a breach of the lease by the landlord, which denied the tenant a right they should have enjoyed. |
If the court decides the lease renewal should proceed, it will order a new lease with terms. Notably, parties to the lease can agree to their own terms. If the tenant decides not to stay in the property, they can ask the court to revoke the new lease. However, the court has the power to extend the current lease in these circumstances and may do so for a period to allow the landlord to find a new tenant.
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Key Takeaways
If you are part of a protected commercial lease, the lease automatically renews at the lease term and date. It does so on the same terms as the current lease or better terms where the landlord and tenant can agree to these. When a protected lease renews, there are legal procedures the parties to the lease can conduct to negotiate an agreed position. Where these fail, a court can play a role in a protected lease. It can, for example, decide the new lease term and rental amount and hear cases where a landlord refuses to renew the lease.
If you need help understanding your protected lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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