Lease Renewals: Plan Ahead and Beware the Devil in the Detail
Lease renewals are a common cause of avoidable disputes between landlords and tenants. In theory, this shouldn’t happen, as all rights and obligations should be clearly spelled out in the lease agreement and are normally dictated by the Landlord and Tenant Act.
Tenants running a busy business are usually focused on other things besides the renewal date of their lease and whether, in fact, they have an automatic right to renew. If tenants are unaware of the landlord’s intentions far enough in advance they can find themselves without premises to trade from.
Reviewing the Rent
Lease renewals normally involve a revaluation of the rent. This valuation is based on the date on which the new lease is signed. A degree of prediction is, therefore, involved. With the current uncertainty in the UK economy, this can make agreeing a fair market rate difficult.
If rents are going up, the landlord may try to delay negotiations as long as possible. If they are falling it may be in the tenant’s interest to slow things down. Getting professional advice on the dynamics of the local commercial property market is essential.
Inside or Outside of the Act?
One of the most important things to know is whether the landlord has contracted the lease out of the Landlord and Tenant Act. Contracting out withdraws the automatic right that tenants have to renew the lease. Landlords may also prevent a renewal if they want to occupy the premises, demolish and redevelop it, or if the tenant has persistently breached the lease.
Assuming the lease is within the scope of the act if the statutory lease renewal process isn’t triggered by either party the tenant has the right to remain in the property on the current terms, but with a three-month notice period. This may or may not be beneficial.
New landlords sometimes mistakenly believe that they can change the terms of the lease at renewal. This is not the case. The existing terms (except the rent) will perpetuate unless an agreement can be reached with the tenant, which usually comes at the price of a period of reduced rent.
What You Need to Do
- Check the expiry dates for your leases and any rent review dates.
- Clarify whether your lease renewal is covered by the Landlord and Tenant Act.
- Plan your lease renewal at least 12 to 24 months in advance of the expiry date.
For landlords and tenants, the best advice is to start planning for renewals as early as possible and make sure you get advice from a commercial property specialist with an in-depth knowledge of the local market and your rights. Contact Hicks Baker today on 01189 596144 or visit the links below for more information.