Is your Tenant’s lease coming to an end?

Lease renewals fall into two categories depending on whether the tenant agreed to contract out of the Landlord and Tenant Act 1954 (the Act) when it originally took the lease.  In either case if the tenant indicates that it may vacate the landlord should immediately consider the tactics around dilapidations (which may well be best negotiated before expiry) and how to mitigate rates liability after expiry. We can help with all of these.

If you are a landlord that may wish to redevelop the premises then seek advice early, ideally more than a year before the end of the contractual term.

Where a tenant wants a new lease we will negotiate the term of the new lease and the rent on your behalf.

If the lease is outside “the Act” the tenant has no right to a new lease and the negotiation for a new lease focuses on what alternatives are available to the tenant.

If the lease is inside “the Act” the tenant usually has a right to a new lease at “a market rent”, and the process is more similar to a rent review valuation.  We will first negotiate on your behalf and if necessary act as Expert Witness under the Landlord & Tenant Act 1954 court procedures and prepare a written report  for attendance at a court or the more cost effective PACT (Professional Arbitration on Court Terms) procedure.

Lease Renewal FAQs

When should I start preparing for a forthcoming lease expiry?

18 months before the expiry date would not be too early.  A landlord should be considering its future intentions for the building, whether it be for redevelopment or enhancing value.  Dilapidations implications may well arise in these circumstances and we are experienced in advising on both the valuation and legal aspects of such claims.

How can the tenant request a new tenancy?

If a commercial tenant, in the knowledge that the lease is coming to an end, wishes to instigate renewal negotiations he can serve a Section 26 Notice on the landlord requesting a new tenancy.

Both landlord and tenant can make an application to Court to progress the grant of a new tenancy, but there are strict deadlines for the tenant.

Case Study: Lease Renewal

2nd Floor, Imperial House, Kean Street WC2

Key issues

  • Building address changed from Kingsway to Covent Garden
  • Risk of market slipping during negotiations
  • Tenant was seeking compensation for disruptive building work
  • Aging Specification
  • Tenant had basement storage on an expired license

What we Did

  • Allsop represented the Landlord of this multi-let building and managed a series of lease events of sitting tenants alongside a major refurbishment of the vacant floors and repositioning of the reception and entrance from Kingsway to Kean Street.
  • We used the address change to introduce Covent Garden evidence to the negotiations.
  • The tenant was seeking compensation for disruption to their quiet enjoyment as part of a settlement.  There was a risk that fudged deal could erode the story of evidence in the building risking weaker future deals.  To protect the evidence we separated the issues and made a separate payment for compensation.
  • The specification was 10 years old, however we were able to demonstrate that there should be no discount.  We showed that the premises were in disrepair and that replacement of the Cat II lights with LEDs would be the tenant’s chosen method of repair (cheapest medium term option) and that much of the rest of the poor presentation of the floor would be rectified if the tenant complied with their decorating covenants.  The air-conditioning plant was shared with the other of the tenants so was directly comparable for all floors.
  • Evidence outside the building was showing headline rents of £60 psf with lengthening rent free periods.  The valuation date for a renewal is the Court date, in a declining market it is invariably in the tenant’s interest to delay matters.
  • To expedite negotiations we used the threat of ending a tenancy-at-will arrangement on the tenant’s basement storage space.  The possibility that this might end was an ever present reminder to the tenant to remain engaged with us on the renewal process.

The Outcome

  • The renewal was agreed at very satisfactory £51 psf with a separate co-terminus license put in place for the basement storage.

Meet the Lease Renewal Specialist team

Richard Bourchier

Partner

Lease Advisory &
Business Rates

MRICS MCIArb

James Acock

Partner

Lease Advisory &
Business Rates

MRICS

John Banbury

Partner

Lease Advisory &
Business Rates