RENT REVIEWS & LEASE RENEWAL

MY LEASE IS ABOUT TO END. WHAT ACTION DO I NEED TO TAKE?

Whether you decide to remain in your existing premises or move, those tenants who prepare their strategy well in advance of the end of the lease will reap rewards particularly in the tenant's market, which currently prevails.

Different considerations apply depending on whether your existing lease is within the Landlord and Tenant Act 1954 ("the 1954 Act") or outside the 1954 Act.

What if my Lease is within the 1954 Act?

A lease within the 1954 Act can continue after the end of the contractual term unless the landlord brings it to an end by serving a Section 25 Notice to Determine or the tenant brings it to an end by serving a Section 26 Notice Requesting a New Tenancy. Both notices must give not more than twelve nor less than six months notice and expire no earlier than the end of the contractual term.

• If your premises are under-rented at the end of the term and you are confident, that the landlord has no redevelopment plans for the premises and no other grounds for opposing renewal, it may well suit you to wait for the landlord to serve his Section 25 Notice. The landlord cannot increase your rent until, at the earliest, the expiration of his Notice.
• If your premises are over-rented, you, as tenant, can take the initiative and bring the tenancy to an end at the end of the contractual term by serving a Section 26 Notice requesting a new tenancy.
• Whichever notice is served, to fully protect your position under the 1954 Act, you will also have to make an application to the court for a new tenancy, and in the case of a Landlord's Section 25 Notice you will have to serve an initial counter notice. These steps have to be taken by strict deadlines but they are straightforward steps which your solicitor will be able to simply resolve for you.
• Having fully protected your position, you now have the luxury of having time to look around for cheaper or better accommodation whilst continuing the negotiations with your landlord. The new Woolf Reforms to the 1954 Act court procedures do mean that the court processes are likely to move faster than they used to. But there is still scope for a tenant to "buy time" whilst alternative accommodation is considered and, possibly, negotiated in tandem with your existing lease renewal negotiations.

What issues should I negotiate on renewal of my 1954 Act Protected Lease?

The terms of most renewal leases will often follow the form of your existing lease.

But in a tenant's market, as at present, the three critical areas you will have most scope for arguing will be in relation to the following:-

• Rent: The landlord is only entitled to a market rent on renewal, disregarding any effect on rent of improvements that you have carried out to the premises during the previous 21 years. The rent is assessed at the date of the court hearing. So, if your lease renewal negotiations are pitching into a period where rents are falling then the longer you can hold off agreeing with the landlord the more that comparables at lower rent may become available.
• Breakclauses: The current market gives tenants greater scope for negotiating a breakclause or breakclauses with their landlord in the renewal lease.
• Rent Review: If your existing lease contains rent review provisions, that review is likely to be upwards only. However, there is case law which does support a tenant's claim for an upwards/downwards rent review on renewal, particularly from the second rent review. Furthermore, the new Code of Practice on Commercial Leases recently published exhorts landlords to "offer alternatives to upward only rent reviews priced on a risk adjusted basis".

In practice, landlords will strongly resist a claim for an upwards and downwards rent review. But such a claim may well enable you to negotiate a breakclause or breakclauses in the renewal lease.

What if I want to end my 1954 Act Protected Lease?

• New case law has confirmed that your lease will terminate at the end of the contractual term if you fully vacate the premises and deliver the keys to the landlord by the end of the contractual term. This will be the case even if a Section 25 or Section 26 Notice has been served and even if you have made an application to the court for a new tenancy.
• If you are still in occupation of your premises after the end of the contractual term, the position is more complicated but, generally, you will have to give at least three months notice to bring your tenancy to an end.

What if my Lease is excluded from the 1954 Act?

If your lease is excluded from the 1954 Act, i.e. it contains an agreement authorised by the court excluding the provisions of the 1954 Act, your lease will automatically come to an end on the last day of the contractual term. So, if you want to stay in occupation you will have to agree terms with your landlord well in advance of the end of the term either by signing a new lease or entering into an Agreement for Lease.

If you are not confident your landlord will agree satisfactory terms with you then you should start negotiating for alternative accommodation well in advance of the end of your lease. The more advanced those negotiations are for alternative accommodation, the more genuine pressure you will be able to apply on your existing landlord to agree satisfactory terms for a renewal of your existing accommodation.

What if I want to bring my existing Lease to an end by exercising a breakclause.

If you decide to bring your lease to an end by exercising a breakclause in your existing lease your Notice of Determination should follow the exact wording of the breakclause. In addition, if your breakclause requires conditions to be complied you must ensure that you have precisely complied with all those conditions set out in the clause by the times specified in the clause, otherwise you may find your notice is invalid.

Conclusion

Whatever your circumstances, do seek good legal advice whenever you are planning to move. Prevention is better than cure! Remember that lawyers always make more money out of litigation when problems arise than advising you how to avoid those problems!