Lease Renewal negotiations are often a more delicate process than the rent review negotiation as the tenant has no obligation to stay.  The door is opened for both parties to review both the rent and the lease terms, a major distinction between a rent review and a lease expiry/lease end.

Not all tenants under a commercial tenancy agreement have the right to a lease renewal when the tenancy expires.  In those cases an earlier start to rent negotiations by the tenant is vital, to allow for the terms of the new tenancy agreement to be agreed before the lease expiry date.  If the decision is made to vacate then negotiating terms on new premises and, where appropriate dilapidations, will need to be completed.

Where the business tenant does have automatic rights to renew lease agreement under the provisions of the Landlord & Tenant Act 1954 then strict timetables need to be understood and adhered to, a lease ‘protected’ under the Act can only be brought to an end by notice if the tenant remains in occupation and is intending on renewing a lease.  The advice provided by the lease consultant surveyor is a key component of this process.

Our advice focuses around the strategic time for serving a Section 25 Notice (for the landlord) or Section 26 Notice (for the tenant) to bring the protected lease to an end, according to whether rental levels are anticipated to be rising or falling at the lease expiry.  Our lease consultancy team will also advise on the timing of any counter notices that need to be served prior to entering into the negotiating process, as part of that lease renewal strategy.

An intimate knowledge of the Landlord & Tenant Act 1954 renewal procedure is second nature to the team as are the rent disputes that usually accompany such a process in the course of reaching a new tenancy agreement.  The best outcome at lease renewal is achieved through a synergy of valuation and legal expertise and we encourage the appointed solicitor to work closely with us as a team.

Resolving lease renewal terms by mutual agreement is preferable and is more often than not, achievable.  However, serious differences of opinion cannot always be avoided be it on rental or other aspects such as lease terms.  In instances of an unresolvable dispute we will act as Expert Witness under the Landlord & Tenant Act 1954 court procedures and prepare a case for the best market terms either for attendance at a court hearing or in written report form for the more cost effective PACT (Professional Arbitration on Court Terms) procedure.

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.  A tenant will need to consider whether the premises remains suitable for their business and if relocation is contemplated then considerable forward planning is required before the expiry date.  Allsop’s Leasing teams can assist here.  Dilapidations implications may well arise in these circumstances and we are experienced in advising on both the valuation and legal aspects of such claims.

What do I do if I receive a Section 25 Notice?

A Section 25 Notice must be in a prescribed form.  It is vital that the content of this notice is carefully checked straight away, do not ignore the notice.

The Section 25 Notice will also tell you if your landlord intends to oppose a tenancy renewal; there are specific grounds where this is permitted such as for redevelopment purposes or for his own use.  You may need to plan an unexpected move.  We can refer you to our Office Leasing Team to help you with this.

If the landlord wishes to keep his tenant after the lease expiry but on new lease terms, again a Section 25 Notice will need to set out proposed terms. We can advise you on these terms.

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.

Why should we appoint a lease consultant for the lease renewal process?

Where the tenant has the protection of the Landlord & Tenant Act 1954 then strict procedures must be adhered to. Strategic timing of the notices and counter notices will improve the party’s position and as market conditions are a deciding factor in determining the strategy, a lease consultant is the most effective person in the process to achieve this aim.

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

The Case

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.