Table of Contents
Commercial leases can be complicated and, at times, confusing. Indeed, there are many clauses within the lease agreement to understand and new jargon too. But as a commercial landlord, you must understand commercial leases to ensure you carry out your obligations correctly and know when to exercise your rights. For instance, consider whether you want a protected lease for your commercial property. This article will explain what a ‘protected lease’ is and what this means for you as a commercial landlord. This will help you decide the type of commercial lease you should offer for your commercial property.
What is a Commercial Lease Agreement?
When you have a commercial lease, you will have a commercial lease agreement which governs the lease. It is a legally binding contract between you and your tenant containing the terms and conditions of the lease, such as the rights and obligations of both you and your tenant. For example, it will state:
- how much rent your tenant must pay for their occupation;
- what maintenance and repair obligations you and your tenant have;
- whether the tenancy can end early as there is a break clause; and
- whether you are right to review your commercial tenant’s rental amount.
Your commercial lease agreement will also indicate whether the commercial lease is protected.
What is a Protected Lease?
A protected commercial lease enjoys the security of tenure protection. Ultimately, it is a commercial lease that has not ‘contracted out’ of this part of property law.
If a commercial property lease is protected, it offers the commercial tenant protection that the lease will not automatically end at the end of the fixed term. Further, the tenant gains a legal right to renew their commercial lease on similar lease terms once it reaches the lease term end date. Although, this is not the case where an exception to this rule applies for the landlord’s benefit. In some cases, the landlord may refuse to renew the lease, usually due a tenant’s breach of contract.
Most commercial leases nowadays are not protected and, therefore, do not offer their commercial tenants security of tenure. You can refer to this as an ‘excluded lease’. Where you and your commercial tenant agree on this, the commercial lease agreement should contain a clause which states this. Moreover, you are obligated to serve them a specific legal notice before they sign, so the tenant is legally aware of the rights they are forgoing when they sign the lease agreement.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
What Are the Effects of a Protected Lease?
To decide whether or not you should offer a protected lease for your commercial property, it is helpful to consider what practical effects a protected lease has. Considering these and their impact as a landlord may assist you in whether you choose to offer a protected lease.
Right to Renewal
As a protected lease grants your tenants the legal right to renew the tenancy at the lease term’s end date, you are likely to continue with the same tenants for a further period.
On the one hand, you will have some security as the landlord that you will continue to have a tenant occupying your property. Therefore, you can continue generating income through your property interest. However, on the other hand, you are stuck with your current tenants when you rather:
- sell your commercial premises with vacant possession; or
- lease it on better terms to a new tenant.
Where you have other plans for the commercial property, renewal could be problematic for you as the commercial landlord. However, some actions may be open to you, which we discuss further below.
Offer New Terms
With a protected lease, when the lease term ends and your tenants seek to renew, you can suggest new terms for the renewed lease. This may be beneficial for you if you want to raise the rent, for example, or suggest new terms in your favour as the commercial landlord.
Opposing Renewal
As a landlord, you have limited legal grounds to oppose renewal. These include:
- failure of your tenant to ensure the commercial property remains in good state of repair;
- consistently late rent payments by your tenant;
- substantial breaches of lease obligations have taken place;
- you offering alternative premises;
- the lease is a sublet of part of your property and if the property were let as a whole commercial premises, your rental income would increase;
- you want to demolish, reconstruct the premises or build on it; or
- you want to occupy the property for your own use.
Therefore, with a protected lease, if there are valid reasons why you do not want to or cannot continue with the tenants and renew their lease, you may have options open to you as the landlord.
What is a Section 25 Notice?
Protected leases have various legal formalities. One of these most relevant to you as a commercial landlord is a Section 25 Notice. You can use this procedure to either instigate renewal with new terms to the lease or to oppose lease renewal and exercise your right to possession.
You must complete the Section 25 procedure legally and get the procedure correct. For example, if you oppose renewal, you need to:
- serve the notice with the date on which you wish the lease to end;
- ensure the date is not before the end of the lease term date;
- make sure the date you serve the notice is not less than 6 months and no more than 12 months from when you wish the lease to end; and
- state why you oppose the renewal of the lease.
You may find procedures associated with protected lease guidance for you as a landlord. However, you may find them inconvenient and require additional legal assistance to get them right.
Key Takeaways
As a commercial landlord, you can offer either a protected lease or a contracted-out or excluded lease. A protected lease is a lease with security of tenure, meaning your tenant has a legal right to renew their lease at the end of the lease term. A protected lease has several effects that may influence whether you wish to offer one. For example, it could mean you are stuck with tenants when you would rather sell the property at the end of the lease with vacant possession. However, it does mean you have the security of tenants in occupation, so rent is paid for your property. A protected lease also means potential legal procedures such as Section 25 Notices which you may find valuable and helpful or otherwise time-consuming and costly.
If you need help understanding whether you should offer a protected lease for your commercial property as a commercial landlord in the UK, 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A protected lease is a commercial lease with security of tenure, which means the lease will not automatically end at the end of the fixed term, and your commercial tenant has a legal right to renew their lease.
Many commercial landlords nowadays do not offer a protected lease. However, it is up to you to agree with your tenant whether you will or not. To decide if you should consider the effects of a protected commercial lease on your role as the commercial landlord.
We appreciate your feedback – your submission has been successfully received.
