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Wake-up call – Renewing your business lease: tips and traps

03 August 2011
Wake-up call – Renewing your business lease: tips and traps

Business leases are usually for fixed periods but most occupiers will have a right to renew. Debra Kent explains how this affects landlords and tenants

THE PROBLEM I have a successful business but my lease is coming to an end in two years. I want to renew the lease but am not sure of the terms which can be agreed, or if the landlord will even agree with me. I have heard that the landlord wants to tear the building down and build some offices. What can I do?

THE LAW Business tenants have a statutory right to renewal of their lease at the end of the contractual term, as long as they comply with the requirements of the Landlord & Tenant Act 1954.

If the landlord and tenant cannot agree to the terms of the new lease, these are decided by a court.

However, landlords have a right to oppose a renewal for the following reasons:

â- The rent is in arrears.
â- There are other breaches of the lease terms.
â- Suitable alternative property is available.
â- The relevant tenancy is of an underletting of a part of a headlease property.
â- The landlord intends to demolish or redevelop the property.
â- The landlord intends to occupy the property.

Qualifying criteria
To qualify, there must be a tenancy for at least six months of the property which is occupied for the relevant tenant's business. Sometimes the business is not carried out by the named tenant on the lease, but by a manager or other company or person. There may still be a right to renew, but this needs to be checked.

Among the reasons a landlord may give for opposing a new lease are that the tenant has not complied with the lease or that they intend to redevelop the building. A landlord must have "a firm and settled intention" with a reasonable prospect of carrying out the development and evidence to support that.

A landlord must specify the ground of opposition with good faith and cannot "make up" a reason for refusing a renewal.

The courts may order damages to the tenant if the landlord misrepresents his position. Compensation for misrepresentation can include relocation costs, any increase in rent the tenant might have to pay for the new premises, professional fees and any compensation payable under the Act which the tenant has lost.

If the landlord successfully opposes the renewal of the lease in certain circumstances, then the tenant may be entitled to claim compensation which can be as much as twice the rateable value of the property.

There are notices which need to be served if the tenant wishes to renew the lease, and possible counter notices. There are specific strict time periods for the service of these.

When to serve these notices and who should serve them should be thought about carefully in consultation with your lawyers and property advisers. It may be that early service of a tenant's notice will result in a saving of rent payable.

CHECK LIST â- Check lease is not "contracted out".
â- Make sure that you, as tenant, qualify for a right to renewal.
â- Consider whether the landlord is likely to object to a renewal and the grounds for objection.
â- Be careful about the time periods, the notices to be served, and what is in the notices.
â- Consider the terms you would ideally like in the lease and the attitude of the landlord.
â- Prepare a strategy taking into account the landlord's possible objections.
â- Consider the possibility of the matter going to court and what terms the court is likely to order if you and the landlord cannot agree.

BEWARE The procedure for renewing business leases is not straightforward and there are many possibilities for the tenant to trip up and lose some or all of his bargaining position. While it is always worthwhile talking to your landlord and discussing what might be agreed, it is preferable to seek professional advice first and to prepare a strategy. Good tactics can save money and achieve a better commercial lease.

Debra Kent is a partner at Charles RussellDebra.kent@charlesrussell.co.uk

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