Business tenants’ statutory rights to renew their leases

A couple of clients/prospective clients asked me to clarify their rights to renew their business leases when they expired.  I therefore thought a blog post on the subject was called for.  I emphasise this is about the tenant’s right to renew their lease: if they can agree terms with their landlord, there is no need to exercise a statutory right of renewal – but if your landlord has served you with a notice to quit, make sure you complete an agreed new lease before the notice to quit expires.

Anyway: on to the statutory renewal rights

Under the Landlord and Tenant Act 1954, a tenant of business premises has a right to renew his or her tenancy for a term up to 14 years and, pending the new tenancy, is entitled to use the premises under the terms of the old tenancy.

At the end of the lease term, if the landlord serves an appropriate notice to quit (complying with numerous detailed legal requirements), the tenant can preserve his rights of renewal by applying to the County Court for a new tenancy.  The tenant must comply with various legal requirements and with a strict timetable.

Grounds for refusing a renewal

The landlord can only resist an order to grant a new lease on specified grounds; namely:-

(a)    that the tenant has failed to pay rent, repair the property or carry out other obligations imposed by the existing lease;

(b)    that the landlord will offer “suitable alternative accommodation for the tenant on reasonable terms”;

(c)    that the landlord intends to demolish the whole (or a large part) of the property, or intends to carry out substantial works to it, and cannot do so with the tenant still in occupation;

(d)    that the landlord intends to occupy the property for his own business or as his home, as long as the landlord acquired the property more than 5 years earlier.

If any of the last three grounds apply, the landlord would be expected to compensate the tenant for having to move premises, the amount of compensation depending upon the rateable value of the property and not usually being anything like sufficient compensation. But the right to compensation can be excluded – see below.

If none of the specified grounds applies, a tenant’s application for a new lease cannot be successfully resisted.  The new lease may be negotiated between the surveyors representing each sides or, failing this, can be fixed by the County Court.  The court will decide on the fair market rent to be paid under the new lease and on its other terms.  Usually, the other terms are similar to those in the existing lease.

Excluding the statutory right of renewal

If a lease is excluded from the security of tenure provisions of the Landlord and Tenant Act, these rights do NOT apply, and the tenant cannot insist on remaining at the property: his ability to stay depends entirely on whether the landlord is willing to let him stay. A landlord will often insist on excluding the statutory renewal rights in order to strengthen his or her bargaining position when the tenant wants to negotiate a renewal – exclusion of the rights should therefore be resisted by a tenant unless there is a good reason for it.

Excluding the right to compensation

Further, if a lease excludes the tenant’s compensation rights, the tenant will not be able to claim any compensation if and when a lease renewal is refused.

More specific advice

If you are a commercial landlord or tenant and want specific advice on your legal position, please contact me – 01580 767100