It is not uncommon for disputes to arise between commercial landlords and tenants when a lease is nearing its end.
A tenant may wish to renew the lease in order to continue operating their business at the same premises but this could be opposed by a landlord if they can rely on certain grounds under the Landlord and Tenant Act 1954 (LTA 1954). Therefore, it is important that both tenants and landlords are aware of their rights.
Does a tenant have a statutory right to renew their lease?
A tenant has a statutory right to renew their lease at the end of the contractual term if:
part 2 of the Landlord and Tenant Act 1954 applies to the tenancy (namely, ‘any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes’ apart from limited exceptions), and
the lease has not been contracted out of the security of tenure provisions of the LTA 1954.
If a tenancy has protection under the LTA 1954 then the tenancy will not terminate at the end of the contractual term but it will continue on the same terms as the contractual tenancy until it is terminated in one of the ways specified by the LTA 1954.
How can termination of the lease be initiated?
A business tenancy with LTA 1954 protection can only be terminated by one of the ways set out in the act, including:
the service of a s25 notice on the tenant or
the service of a s26 request for a new tenancy on the landlord.
What is the s25 notice procedure?
In order for a landlord to end a business tenancy that has protection under the LTA 1954, they can serve a valid s25 notice in the prescribed form on the tenant, and it must be served not less than 6 months nor more than 12 months prior to the date of termination specified in it.
In the s25 notice, the landlord must state that they either oppose the grant of a new tenancy and set out the statutory ground(s) they rely on, or, that they do not oppose the new tenancy and set out the proposed terms for the new lease.
The tenant does not have to accept the proposed terms and they can be altered during the course of negotiations.
In order to be valid, the notice must comply with the statutory requirements and:
be served not more than 12 months, nor less than 6 months before the termination date specified in the notice (the termination date specified in the notice cannot be before the contractual expiry date of the current lease), and
be in the prescribed form and include all of the required information. (There are two different prescribed forms depending on whether the landlord opposes the renewal of the lease or does not oppose the renewal.)
The landlord cannot serve a valid s25 notice if the tenant has already served a valid s26 request.
The landlord can serve the notice before the end of the contractual term or after the end of the contractual term if the tenancy is continuing under s24 LTA 1954.
What are the grounds for a landlord opposing a tenant’s right to renewal?
Ground A: Premises are in disrepair,
Ground B: Arrears of rent,
Ground C: Other breaches of covenant,
Ground D: Suitable alternative accommodation,
Ground E: Tenancy was created by a sub-letting,
Ground F: Landlord’s intention to redevelop,
Ground G: Landlord’s intention to occupy.
What is the s26 request procedure?
The tenant can request a new business tenancy by serving a valid s26 request in the prescribed form, on the competent landlord, specifying a date for termination and proposing the terms for a new tenancy.
To be valid, it must comply with the statutory requirements and the tenant should also ensure that the notice:
proposes a commencement date for the new tenancy,
includes the address or description of the property to which the notice applies,
is served not more than 12 months, nor less than six months before the proposed commencement date of the new tenancy (the commencement date specified in the request cannot be before the contractual expiry date of the current lease), and
uses the prescribed form and includes all the information required.
The tenant cannot serve a valid s26 request if a valid s25 notice has already been served.
The tenant can serve the request before the end of the contractual term or after the end of the contractual term if the tenancy is continuing under s24 LTA 1954.
What happens if the proposed termination date/proposed commencement date is later than the contractual expiry date in the lease?
If the proposed termination date or proposed commencement date is later than the contractual expiry date, the s25 notice or s26 request has the effect of extending the tenant’s liability for rent and tenant’s covenants under the existing lease until the date specified in the s25 notice or s26 request.
When can the parties make an application to the Court?
Opposed renewal – initiated by the landlord by s25 notice
Either party can apply to the Court as soon as the s25 notice has been served on the tenant.
If the landlord opposes the renewal but the tenant disputes the ground(s) as set out in the s25 notice then the tenant can apply to Court for an Order for a new tenancy.
If the tenant does nothing following receipt of the s25 notice then the tenancy will automatically end on the date set out in the s25 notice or continue on the new terms proposed.
Opposed renewal – initiated by the tenant by s26 request
“However, when the tenant serves on the landlord a s26 request, neither party can apply to the Court until the landlord has served a counternotice or two months have passed since the s26 request was served.
The landlord must serve a counternotice on the tenant within 2 months of receiving the s26 request if they intend to oppose the grant of a new lease. The counternotice must specify the ground(s) of opposition upon which the landlord relies.
If the tenant disputes the landlord’s ground(s) of opposition, the tenant may apply to Court for a new lease or they will lose their rights under the LTA and must do so before the commencement date specified in the s26 request unless an extension of time is agreed. The Court will assess the ground(s) upon which the landlord opposes the lease renewal.
Alternatively, the landlord can make an application for an Order to terminate the lease on the specified ground(s) but not if the tenant has already applied to Court.
Unopposed renewal – initiated by the tenant or the landlord
If there is no opposition to a new lease then the landlord need not serve a counternotice and the parties may proceed with negotiations to avoid Court proceedings. Once the new lease is agreed it should be recorded in writing.
However, if it is not possible to reach agreement on the terms through negotiation then either the landlord or the tenant can apply to Court for an Order for the grant of a new tenancy before the commencement date specified in the s26 request. The Court will decide the terms of a renewal lease which the parties cannot agree on.
Neither party can apply to Court if the other party has already done so.
When is the deadline for the parties to apply to Court?
The deadline for the parties to apply to Court is:
no later than the date proposed in the landlord’s s25 notice to end the old tenancy, or,
the day before the commencement date of the new lease specified in the s26 notice of the tenant.
The parties can agree to extend the deadline for applications to the Court, but they must do so in writing before the original deadline expires. They can then agree to further extensions, as long as they do so before the current extension runs out.
Disputes regarding lease renewals can be complex and it is important that commercial landlords and tenants seek legal advice in order to adequately protect their interests. If you would like to discuss a dispute regarding a commercial lease renewal with our expert litigation team, then please contact us on 0845 287 0939, complete our online contact form, or talk to us on the online chat below.