Commercial Lease Renewals
Both landlords and tenants are faced with a number of questions at the end of a commercial lease. It is therefore essential that they are both aware of their options, the correct procedure to follow and the appropriate strategy to maximise their bargaining position. Silverman Sherliker’s Robert Clark, a partner in our Dispute Resolution team, and Mark Reis, Commercial Property partner, explain.
The first question is when does the tenancy end? This may seem obvious, however, if the lease has security of tenure (under the Landlord and Tenant Act 1954), it will not necessarily end on the date on the lease. Instead, it will continue until one of other party take further action.
If the lease does not have security of tenure, then it will end at the end of the contractual term. Both parties should be aware of this deadline well in advance and decided whether or not they want a new lease or whether the tenant will be vacating the premises.
If the lease does have security of tenure, then both the landlord and the tenant should be thinking about whether or not they want to renew it. This will often depend on what the market rent is for the premises and they should be speaking to a surveyor to find out whether the current rent is above or below market rent. If the rent is below market rent, the landlord will be looking to maximise the rent, and it would be worth considering terminating the current lease and offering a new one at a higher rent. Delaying taking steps could mean that the landlord is left out of pocket. Alternatively, if the tenant finds themselves paying more than the market rent, they may want to take steps to enter into a new lease at a lower rent, as soon as possible.
On the other hand, the landlord or the tenant might decide that they no longer want to continue the lease, in which case, there are a number of options available.
If the lease has security of tenure, and the landlord wants to end it, they will need to take steps to terminate the lease and oppose a new one. This is not a straightforward process and would need to be considered carefully. On the other hand, if the tenant wants to terminate their lease, they will either need to ensure they have vacated the premises at the end of the term or serve a further notice on the landlord.
Alternatively, if the lease does not have security of tenure then it will come to an end at the end of the contractual term and both the landlord and the tenant should ensure that the tenant has either vacated or they have put other measures in place beforehand. Failing to do so can cause serious problems for both parties.
Finally, there are a number of additional points that the parties will need to consider when the lease terminates including removing subtenants, reinstating any alterations and, potentially, removing fixtures and fittings. Crucially, both the landlord and the tenant will need to consider the tenant’s repairing liability and whether or not the tenant has left the premises in a re-lettable condition. This is one of the biggest areas of dispute between commercial landlords and tenants and taking steps to carry out repairs, and ideally agree them, before the end of the lease can often reduce both parties’ losses and may also reduce any loss of rent to the landlord before they re-let the premises.
At Silverman Sherliker we regularly advise commercial landlords and tenants on all of these issues and focus on giving clients clear, practical and commercial advice. Please contact Robert Clark or Mark Reis if you have any queries regarding any of these points.
Robert Clark: firstname.lastname@example.org
Mark Reis: email@example.com
Telephone: +44 (0)20 7749 2700