THE MARSHALL & GALPIN GUIDE TO BUSINESS LEASE RENEWAL
UNDER THE LANDLORD & TENANT ACT
The procedures for renewing business tenancies have now changed. Whenever you have a lease, which is protected under the Landlord, & Tenant Act 1954 (i.e. there is no provision in the lease excluding the provisions of sections 24 to 28 of the Landlord & Tenant Act 1954) the procedures for renewal have changed and different tactics may now have to be adopted.
The first thing to note is that regardless of any provisions of the Landlord & Tenant Act 1954 there is nothing a landlord can do to stop a tenant walking away from a lease at its expiry. A tenant does not have to serve notice to the landlord that he is going to leave on the expiry date and it is only if the expiry date has passed that the landlord will need to have notification from the tenant.
Assuming that either the landlord wants to bring the lease to an end, either by terminating it or by offering the tenant a new lease, or the tenant wants a new tenancy the same basic procedures still apply. Both the landlord’s notice terminating the lease and the tenant’s notice requesting a new lease have to be a minimum of 6 months and a maximum of 12 months. The landlord now has two choices of notice. He can either serve a notice terminating the tenancy and giving the ground of termination as before – and the grounds have not changed – or there is a separate form of notice that he has to serve if he wants to give the tenant a new tenancy and within that notice he has to specify the basic terms of the new tenancy that are being offered. Equally the tenant when applying for a new lease must put forward the terms on which he is proposing the lease be granted.
In the case of a landlord’s notice there is now no requirement for the tenant to respond to it at all let alone within any time limit. If however the tenant requests a new tenancy the landlord must respond within 2 months stating whether he is prepared to give a new tenancy or not and if not the grounds on which he is opposed to it.
Both the landlord’s notice to terminate and the tenant’s request for a new tenancy will contain in them the date on which the tenancy is to end and that date of course cannot be any earlier than the termination date in the lease (the original end term date or the date on which either the landlord or the tenant is entitled to break the lease if appropriate).
The procedure now is that that end date is the date by which either the landlord or the tenant must apply to the Court. That date can be extended by mutual agreement but because of the importance of that date it is vital that proper written agreement between the landlord and tenant is entered into so there can be no doubt about the fact that the date has been extended for application.
It used to be the case that when application was made to the Court the tenant and the landlord mutually agreed that the matter could be left on file and in some cases the matter was left on the Court files for several years. The new Court procedures however simply do not allow that. Whilst there is a procedure whereby there can be automatic waiver of a requirement for proceedings for three months thereafter the Court will manage the case and will require the parties to get themselves into a position where the case can be heard. They will also encourage the parties to get any differences resolved by independent arbitration if there are only one or two points which are outstanding between the parties.
Effectively once the matter has got to Court the Court’s powers have changed very little in terms of ordering a new tenancy but the maximum is now 15 years rather than 14 years. The terms of the new tenancy will still by and large be based on the terms of the existing tenancy.
Under the new law the right to apply for an interim rent (the rent that is payable between the date specified in the appropriate notice for expiry and the date the new tenancy commences) can either be exercised by the tenant or the landlord. Originally only the landlord could apply. This is obviously of benefit to the tenant if the market rent is less than the rent that he is paying under his existing lease.
As a result of the new law the following have to be borne in mind:-
1. Before the landlord serves any notices he must either have his grounds for possession established or must have sorted out the terms of the new lease that he is going to grant.
2. If the landlord does want possession he can apply to the Court much earlier for the case to be brought to ensure that he gets possession at the earliest date.
3. The landlord however if he wants to give the tenant a new tenancy is in an uncertain position because the tenant does not have to respond to his initial notice. He may therefore be forced to apply to the Court to flush out the tenant’s intention.
4. The tenant is in a very much better position if he simply wants to leave at the end of the term without necessarily informing his landlord of that fact.
5. The tenant is also in a better position because he can apply for an interim rent if it is felt appropriate.
6. As a result of another change in the law the tenant is not now prejudiced by the fact that the lease may be in the name of a company in which he controls the interest whereas he is running his own business from the premises or vice versa. Previously he lost his right to renew.
There are also certain basic matters that have to be considered in relation to lease renewal and entitlement: -
1. A tenant can only request a tenancy of business premises if he has a written lease.
2. A tenant is only entitled to a new tenancy if he is running a business from the premises.
3. If a tenant has a lease, which is, covered by the Landlord & Tenant Act 1954 there is no obligation upon him to replace it with a lease, which is excluded from those provisions. He has a statutory entitlement to a new tenancy and that new tenancy will also be covered by the Landlord & Tenant Act.
4. Two of the grounds on which the landlord is entitled to a new lease are that he wants to carry on his own business or that he wants to redevelop the premises but he is only entitled to use those grounds if he has owned the premises for 5 years.
5. Notwithstanding the fact that the landlord may not have owned the premises for 5 years if they can convince the Court that they do intend to redevelop or use it for their own business they may be able to persuade the Court to grant a short lease which fits in with their plans but at the expiry of that lease they will still have to establish, if necessary, to the Court’s satisfaction that a new lease should not be granted.
6. If a landlord’s notice is served and the tenant does not respond and neither the landlord nor the tenant apply to the Court for a new tenancy the lease expires and the tenant has no right to remain in the premises.
7. The tenant can still shoot himself in the foot by requesting a new tenancy and failing to apply to the Court within the appropriate time limit thus effectively terminating his own tenancy.
As a whole the changes in law have probably benefited tenants much more than they have landlords but the time limit pitfalls that used to apply under the previous law still exist to trip people up and it is important that the proper procedures are known and followed.
For further information please contact:
James Barnatt (Oxford) 01865 268644 email - mailto:james.barnatt@marshallgalpin.com
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