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When you enter a new lease with a commercial tenant, you will agree on a lease term end date, outlining the period that the lease will last for. However, if the agreement is a protected lease, it will usually renew rather than end, regardless of the lease term end date. If you are a landlord, there are some instances where you may overcome this and refuse lease renewal for your business tenants. This article will explain when you, as a landlord, can refuse lease renewal for a protected lease in the UK.
What is a Protected Lease?
A commercial lease is a protected lease where it has security of tenure. Security of tenure means that the commercial lease enjoys the protection offered by part of the Landlord and Tenant Act 1954. However, not all leases provide security of tenure.
Security of tenure offers a commercial tenant the protection that their commercial lease will legally automatically renew when it reaches the lease term end date. However, may refuse on various legal grounds to renew the lease. However, it will ultimately be up to a court to decide the validity of your refusal.
Legal Grounds for Refusal
Ground 1 – Breach of Repairing Covenant
If your tenant breaches a repairing covenant, you may have grounds to refuse to renew their lease. However, your refusal cannot be automatic. You must prove that your tenant does not deserve renewal due to the breach. This is because a court may oppose your refusal and consider alternatives, such as a new lease that contains a lease covenant requiring the tenant to repair the premises as soon as possible.
Ground 2 – Late Payment of Rent
As a landlord, you may also refuse to renew a protected lease where your tenant has paid their rent late and, therefore, is not entitled to lease renewal. In this case, a court will consider the specific circumstances of your scenario, including whether you may rely on your tenant to pay future rent on time.
Ground 3 – Breach of Lease
Where a commercial tenant breaches the lease, you may choose not to renew the lease if the breach is to the extent that they do not deserve tenancy anymore. When determining the validity of your refusal, a court will consider:
- the circumstances of the breach; and
- how the tenant has previously behaved during the lease.
However, it is important that you immediately express your opposition to your tenant’s breach of the leasing agreement. If a court finds that the breach was ongoing or has occurred repeatedly and you either acquiesced or dismissed it, it is unlikely that they will allow refusal.
This cheat sheet outlines what you should be aware of in your lease agreement.
Ground 4 – Alternative Accommodation
You may also refuse the legal right to lease renewal if you offer your tenant suitable alternative accommodation. However, you must offer this on reasonable lease terms.
Ground 5 – Sub-Tenants
If the tenant is a sub-tenant, you, as their landlord, may refuse renewal. This can occur where the superior landlord wishes to let or dispose of the entire property that the sub-tenant occupies part of. You may only refuse renewal if the superior landlord:
- plans to let or dispose of the property; and
- will receive more rent than what they are currently receiving; and
Ground 6 – Demolition or Reconstruction
If you genuinely intend to demolish or reconstruct the commercial property, you can refuse lease renewal. The demolition or reconstruction does not necessarily have to affect the entire commercial premises in order to be a valid reason. However, you must prove that you require possession of the premises in order to carry out the building work.
Ground 7 – Landlord Possession
The final legal ground on which you may refuse to renew your tenant’s commercial lease is where you genuinely plan to occupy the premises yourself. This can be for residential or business purposes. However, you can only rely on this ground if you have been the building owner for at least five years at the lease term end date.
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Key Takeaways
When a commercial tenant has a protected lease, they have an automatic right to lease renewal at the lease term end date. However, there are seven legal grounds for which you, as the landlord, may try to refuse. For example, you may decline where the rent payments are often late or the tenant has severely breached the lease. However, there are strict criteria that you must meet for each ground of refusal.
If you need help understanding when you can refuse renewal for a protected commercial 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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