The End of the Lease is Nigh
A couple of things to consider if your commercial lease is coming to an end within the next twelve months:
Do you want to renew your lease?
If the answer is yes then you need to establish whether you have a statutory right to renew. The default position for business premises is that you do but this right can be excluded by the landlord at the outset. If you are in any doubt ask your lawyer to check your lease for you.
If you do enjoy a right to renew, you can make an official request for a new lease at any time during the last year of the term (known as a s26 notice) - provided the landlord hasn't already served notice - more on that shortly. This request will state the terms you require (length of lease, rent etc). The landlord then has two months to say whether or not they agree to your request. In certain circumstances, the landlord is entitled to refuse to grant you a new lease and this can sometimes give rise to a right to compensation.
If you do nothing, the landlord might serve a formal notice (known as a s25 notice) bringing the lease to an end at the end of the contractual term stated in the lease. This notice will state whether the landlord wishes to offer you terms for a new lease and, if they do, the proposed terms of that lease.
If both you and the landlord do nothing (and your statutory right of renewal has not been excluded) then your lease will not come to an end even if the contractual term has expired. Instead, the lease will carry on until either you or the landlord serves one of the notices referred to above.
Doing nothing can be tempting because until one of you serves notice, you will continue to pay rent at the same rate and you won't incur the expense of dealing with renewing the lease. In the current market, however, commercial rents are falling so you may want to serve notice to try and renew the lease at a lower rent. The landlord only needs to give you six months notice of their intention to bring the lease to an end so you may wish to serve notice yourself rather than be forced to relocate within six months.
If you are in the last year of your lease and considering your options then make sure you pick up the phone and call your lawyer as the timing of service of the relevant notice can be critical and an incorrect notice may be deemed to be invalid.
Is the property in disrepair?
This is a very important (and potentially costly) issue at the end of a lease. The landlord is entitled to make a claim for 'dilapidations' at the end of the lease. This is based upon the repairing obligations imposed on the tenant in the lease itself but also on the reduction in the value of the premises as a result of the condition of the property.
It is important to engage a building surveyor to establish your likely liability for repairs at the end of the lease but it is just as important to establish the landlord's plans for the premises. If the landlord intends to demolish the premises and redevelop the site then it will have no right to recover from the tenant the cost of carrying out repairs because the condition of the premises hasn't caused them to suffer any loss.
One way to establish the landlord's intentions is to serve a tactical s26 notice. Even if you don't want a new lease, you can serve a s26 notice requesting a new lease just to force the landlord to reply within 2 months confirming their intentions. Serving the notice imposes no obligation on the tenant to actually sign a new lease.
Strategy can be critical when renewing your lease to ensure you achieve the best deal possible.
If you are approaching the last year of your lease then its time to consider your options.
As is perhaps indicated by this article deciding exactly what to do and when to do it is quite complex. Advice from a commercial property lawyer will certainly help.
You can pose your specific question to our commercial property expert, Steve Petty, here or book a telephone appointment with Steve via our book appointment form here.
Article added: 16 July 2008 © Cousins Business Law
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