Whether you plan to renew, renegotiate terms, or regain possession, early preparation is key. In this blog, we outline the main points you should be aware of.

1. Start Planning Early

Ideally, begin reviewing your position at least 12 – 18 months before the contractual end date (dependent on the length of the lease), to ensure you have sufficient time to assess market conditions, consider the tenant’s performance, and determine your plans for the future. This also allows time to serve the required legal notice on the tenant if you decide to renew the lease or regain possession of the property.

2. Review the Condition of the Property

As expiry approaches, consider the property’s condition and the tenant’s repairing obligations. Many modern commercial leases impose responsibility on the tenant to keep the property in good repair, redecorate before expiry, and return it in a specified condition.

Consider whether you will need to commission a Schedule of Dilapidations, outlining any work the tenant needs to undertake to comply with its repair obligations. This can be a lengthy process, so it is advisable to instruct a surveyor 6 - 12 months before the lease ends. This allows enough time to serve the schedule on the tenant and negotiate any necessary works.

Raising these issues well in advance can help to avoid last-minute disputes and protect the value of the premises.

3. Decide Whether You Want to Renew or Regain Possession of the Property

If you wish to offer the tenant a new lease, early discussions can help secure continuity of income and avoid periods where the property is empty.

If you want to regain possession, you may need to serve the appropriate statutory notice depending on whether the tenant has the protection of security of tenure under the Landlord and Tenant Act 1954 (‘the 1954 Act’) or not.

4. Understand the Notice Requirements

The notice process differs depending on whether the tenant has security of tenure under the 1954 Act or not.

If the Tenant has Security of Tenure

Landlords can serve a Section 25 Notice on the tenant either:

• Proposing terms for a new lease, or
• Opposing renewal on one or more statutory grounds. These include

- Breach of tenant’s covenants, for example, persistent non-payment of rent

- The landlord intends to demolish and reconstruct the property or carry out substantial reconstruction works

- The landlord intends to occupy the property

- The landlord can provide suitable alternative accommodation

- The lease is a subletting of part and is reducing the rental value of the whole property.

This notice must specify a date on which the landlord proposes the existing lease to come to an end, which must be 6 - 12 months in the future and cannot be earlier than the contractual lease end date. It is critical that the notice is drafted correctly and is served on the correct person/company. It is important to seek legal advice, as an invalid notice is treated as though it were never served at all, meaning the tenancy will continue on the same terms until a valid notice is served.

The tenant has the right to remain in the property and is entitled to request a renewal lease by serving a Section 26 Notice on the landlord. You must respond within two months if you wish to oppose the renewal lease, based on one of the statutory grounds (examples above). If you do not respond within this time, you lose the right to oppose the renewal lease, and the tenant can apply to the Court to grant a renewal lease, regardless of whether you are happy to grant a renewal lease or not. Separately, the tenant can also apply to the Court to challenge the grounds listed in any notice to oppose a renewal lease.

If a lease with security of tenure protection expires without any notices being served, the tenant may “hold over” and remain in occupation on the same terms. While this maintains rental income, it can complicate future plans and create uncertainty.

If you do not want the tenant to hold over indefinitely, it is crucial to manage the notice process proactively.

If the Tenant does not have Security of Tenure

The tenancy will automatically expire on the contractual end date. If the parties wish for the tenant to remain in the property, they should enter a new lease. It is important to plan ahead, as if you allow the tenant to remain in the property and accept rent from them without entering into a new lease, this could inadvertently create a new form of implied tenancy which gives the tenant security of tenure, despite the original lease excluding security of tenure. This has significant consequences, so it is advisable to begin negotiating the terms of the new lease well in advance of the expiry of the existing lease.

6. Compensation

If you do not wish to offer the tenant a renewal lease for reasons other than the tenant’s breach of its obligations, where the tenant has security of tenure under the 1954 Act, the tenant may be entitled to statutory compensation, based on the property's rateable value of the property. If the tenant has occupied the property for less than 14 years, the compensation is equal to the rateable value. If the occupation is 14 years or more, the compensation is twice the rateable value. We would recommend obtaining surveyors’ advice to establish the rateable value and possible consequent compensation.

Conclusion

When a commercial lease is coming to an end, early planning and a clear understanding of your legal and practical options are key. A proactive approach ensures you are well-placed to secure the best outcome, whether that is renewing the lease or taking the property in a new direction.

Please note that the contents of this blog are intended as general information only, and do not constitute legal advice. If you are seeking more advice on this area, please contact one of our friendly team on 01926 954694.