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As a business owner in the UK, you may occupy the commercial space to run your business. If so, you will have a commercial lease agreement with your landlord. This will outline various terms, including the period you will lease the business space for. Once you reach the lease end date, you may wish to renew your lease. This article will explain five key points about renewing a commercial lease in the UK.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Points About Lease Renewal
When you renew a commercial lease in the UK, there are some key points you should be aware of. We explore these in more detail below.
Type of Lease
When renewing a commercial lease, you first need to know what type of lease you have in terms of whether it is a ‘protected lease’ or an unprotected one. If you have a protected lease, this means that once your lease term ends, you have a legal right to renew your lease and, therefore, stay on your business premises. Your lease automatically renews unless your commercial landlord opposes renewal on limited legal grounds.
Nevertheless, most commercial leases nowadays tend to be unprotected leases. If your commercial lease is unprotected, it does not automatically renew when the lease term ends, as you have no legal right to renew. Instead, if you wish to remain in the commercial premises and renew your lease, you can try to negotiate renewal with your landlord. It would help if you thought about this sometime before the lease comes to an end.
Section 25 Notice
If you have a protected lease, you should be aware of what a Section 25 Notice is. This is the notice your commercial landlord will use when they want you to:
- refuse lease renewal on limited legal grounds; or
- instigate the automatic renewal of your lease.
If they want to renew it, they will set out new terms, which you can agree on, or you can negotiate with your landlord.
Section 26 Notice
Whilst your commercial lease will renew automatically, as a commercial tenant, you can trigger the renewal process where your landlord still needs to serve you with a Section 25 Notice. You can do this with a Section 26 Notice, where you may also request new lease terms. If you wish to trigger your lease renewal, you should provide the Section 26 Notice at least 6 months before the end of the lease term but not more than 12 months before. Your landlord has two months to respond to it.
Opposing Lease Renewal
When you have a protected lease, and it is due to renew automatically, your landlord can only oppose this with a Section 25 Notice on specific legal grounds. If they oppose you in response to you serving them a Section 26 Notice, they have two months to refuse your request. There are seven grounds on which your commercial landlord can refuse your legal right to automatic lease renewal. These are because:
- you are in breach of a repair covenant;
- you are persistently late with your rent;
- of another breach which warrants a new lease refusal;
- the landlord offers you other commercial premises with reasonable lease terms;
- you have subletted where you should not;
- your landlord wants to destroy or reconstruct the commercial property; and
- your landlord has a genuine desire to account for the premises for themselves.
Lease Negotiations
If you do renew your commercial lease, whether it renews automatically or you have to negotiate renewal, you effectively start a new lease with your landlord. Therefore, you can negotiate the terms of this. As a commercial tenant, when negotiating new lease terms, you must consider, for example:
- the rent price in comparison to rental prices in the area;
- the lease term, which should not only suit you but be comparable with those in the market in similar premises; and
- whether you wish to include a break clause to allow you to end your lease early.
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Key Takeaways
If you wish to renew your commercial lease in the UK, there are some key points you need to be aware of. You must understand these issues when you renew your commercial lease to enjoy your legal rights and get the best terms for a new lease. For example, you should understand whether you have a protected or unprotected lease, as this is key to whether you have the legal right for automatic renewal. It also dictates how you go about your lease renewal. Regardless of your legal rights to renewal and how you need to go about it when you do renew your lease, you should understand key points to think about when negotiating new lease terms, such as your rent amount.
If you need help understanding key points about renewing a commercial lease in the UK, LegalVision’s 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 commercial lease is where you, as a business tenant, occupy your landlord’s property as your commercial premises for your business use. You do so for a fixed term and in return for rent.
There are many essential points to consider when you renew a commercial lease. For example, if you have a protected commercial lease, you need to understand the different types of notices that may be used in the process, such as Section 25 and Section 26.
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