A commercial lease is often a very significant asset. Landlords will be keen to maximise both their property portfolios and the returns created by that property ownership. In an ever-changing commercial marketplace, these competing interests often create friction leading to dispute between a commercial Landlord and Leaseholder. Very often this is a process that ends up in court, where arguments around the tenant’s right to a new lease, length of lease term and yearly rental are common.
Our dispute resolution lawyers have experience of guiding both Landlords and Leaseholders through the complexities of the current legislation and ever-changing case law.
When does a commercial Leaseholder have a right to a new lease?
A Leaseholder will have a statutory right to a new lease on the expiry of a contractual lease term as long as Part II of the Landlord and Tenant Act 1954 applies and the parties to the lease did not obtain an order of the court or for newer leases “contract out” of the right by the signing of a statutory declaration and incorporation of an exclusion clause in the lease.
A Leaseholder’s statutory right to new lease will depend on certain ‘qualifying criteria’ being met and is subject to certain specific exclusions.
Amongst those qualifying criteria are the requirements that:
- the leasehold premises are currently occupied for the purposes of a business
- the business is carried out by the Leaseholder
At the end of a fixed term lease, if the qualifying criteria are met, a leaseholder will be ‘holding over’ (Section 24 of the Landlord and Tenant Act 1954) and will have ‘security of tenure’ with the lease continuing until it is terminated in accordance with the law.
A Landlord can refuse to grant a new lease on certain statutory grounds commonly including:
- Non-payment of rent
- Breaches of other covenants by the Leaseholder
- Landlord’s intention to redevelop (this type of claim often leads to litigation)
In some circumstances, compensation will be payable to a Leaseholder.
If the lease falls outside of the 1954 Act there will be no ‘security of tenure’, and the lease will expire at the end of the contractual term. The parties will nevertheless be free to agree terms for a new lease, but a landlord will not be obliged to grant one and may choose a new Leaseholder instead.
Leaseholders with ‘security of tenure’ may also seek to negotiate terms for a new lease with their Landlord but here the difference is that if no agreement is reached, for example, on length of the new term or yearly rent, there are statutory procedures available to determine the lease terms.
What is the statutory procedure to determine terms in dispute?
A Landlord can seek to end a commercial lease by serving a statutory ‘Section 25 Notice’ which will propose the Landlord’s terms for a new lease or will state the reasons why a new lease will not be granted. There are different statutory forms required depending on the circumstances.
A Leaseholder can begin the renewal process by the service of a ‘Section 26 Notice’ stating the commencement date of the new lease and the terms sought.
Both notices, to be valid, must comply with statutory requirements and be served not more than 12 months, nor less than six months before the termination or commencement dates respectively detailed in the Notices.
The parties will remain able to negotiate terms for a new lease, but a Leaseholder will need to be careful to make an application to court for a new lease before the date specified in any Notice is reached, or that a written extension of time is made with the Landlord. Failing to do so will result in the loss of the Leaseholder’s right to a new lease.
How we can help when landlord and tenant cannot agree terms
We can assist you throughout this process and can make the court application on your behalf and represent you at every stage of the court proceedings.
Contact our friendly, expert team today by emailing firstname.lastname@example.org or alternatively, for initial advice or to arrange a meeting with one of our team, please call us on 020 7631 4141 and ask to speak to the Property Dispute team.