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Do you have a commercial lease? if so, perhaps we can assist

Do you have a commercial lease? if so, perhaps we can assist
Zoe McCaig Jul 19,2022

Do you have a commercial lease? If so, perhaps we can assist. We are able to assist and provide advice for the following matters:-

 

  1. Commercial lease renewal:-

Subject to some exceptions, commercial leases can be divided into two categories: those benefiting from the security of tenure provisions in the Landlord and Tenant Act 1954 ("the Act") and those that have been expressly excluded from the Act.  If you don't know whether you have security or not, we would be happy to consider your lease for you and confirm this for you.  Either way, you should be thinking about your options at least 12 to 24 months before your lease expires. It is therefore important to always make a note of any key dates.

 

If your lease benefits from the Act this means that you, a commercial tenant have the right to renew its lease of the premises that it occupies for the purposes of its business and in order to do this then the following will apply and we can assist with this, The renewal process is triggered by the service of a statutory notice (sections 25 and 26 notices) from either the landlord or the tenant.  Until one of these notices has been served, the current tenancy is automatically continued on a periodic basis.

The correct statutory procedure must be followed to ensure that the right to renew is not inadvertently lost.  You should therefore seek legal advice in good time before the contractual expiry date of your lease, to ensure that the correct procedure is followed to renew or terminate your lease, as the case may be.

 

  1. Serving a S26 notice-
  • To initiate the renewal process, you  must serve a request for a new lease on the landlord. This request is known as a s26 notice. This request will set out the date for the commencement of the proposed new lease. This could be the day after the contractual expiry date of the existing lease, or it could be months or even years afterwards. The tenant must give at least 6 months’ notice and no more than 12 months' notice to the landlord before the new lease begins.  For example, if a lease expires on 31 October and the tenant wishes to request a tenancy starting on the following day, the tenant must serve a request for a new tenancy at any time between 1 November and 30 April.
  • The tenant can pre-empt the landlord's section 25 notice (the landlord's equivalent of a s26), request a new tenancy and propose terms for renewal. He does so by sending a section 26 notice
  • The request will state the tenant's proposed terms for the new lease, such as starting rent, term length, any break clauses and any other proposed terms that are different to the current lease.
  • Once a tenant triggers the renewal process, the landlord has  two months in which to dispute the grant of a new lease. the tenant should make a note of this date because if this period passes and the landlord has not replied then the tenant is automatically able to renew the lease.
  • The landlord can oppose the tenant’s request to renew their tenancy, but only on very specific grounds, as set out in the Act.  If the landlord fails to establish any of these grounds, and this can involve expensive court action, the tenant will be entitled to a new tenancy and the terms of the new lease must be agreed by the parties on similar terms to the original, or (when they cannot agree) by a County Court in accordance with the rules set out in the Act.
  • The most commonly used grounds are that the Landlord intends to redevelop (ground (f)) or occupy the premises (ground (g)).  The landlord’s intention must be firm and settled and have a reasonable prospect of achieving the intention.  The onus is on the landlord to satisfy this requirement.  You will need to seek legal advice if the landlord is opposing your lease renewal, on these or any of the other grounds set out in the 1954 Act. We will be able to assist and advise you further with this.
  • If the landlord is happy to renew the lease, the parties then can negotiate the terms. The majority of lease renewals are negotiated between the parties. However, if the parties cannot agree terms and a new lease is not completed, either party may apply to the Court to decide the terms. If you cannot agree on the terms you must apply to the court before the expiry of the S26 notice, if you do not do this and the date passes you will lose your right of renewal so again this date is extremely important and we can help to prompt any key dates and make sure your renewal right is not lost.
  • Where renewal is initiated by the tenant, neither party can apply to court until the landlord has served a counter notice or the date two months after the tenant has made its section 26 request, whichever is the earlier
  • Where renewal is initiated by the landlord, either party can apply to the court as soon as the section 25 notice has been served (please see below on S25 notices)

 

 

  1. Advising on s25 notices:-

 

This is where the landlord opposes a new tenancy. If a landlord serves a S25 notice, we can check the notice is valid and advise you on your rights. It should be noted that the landlord can only refuse a new tenancy on certain grounds and we can check these grounds for you. there are certain grounds which are known as no fault grounds, If the landlord opposes the lease on a no fault ground the tenant may be entitled to compensation and again we would be happy to consider this for you.

It should be noted that if a s25 notice is served incorrectly then the notice is invalid and the tenant may still have the opportunity to serve a s26 notice.

 

 

  1. Forfeiture claims

 

Forfeiture or re-entry is the landlord's right to determine the lease in the following instances:

·         1. Where the tenant is in breach of any of its obligations under the lease.

·         2. On the occurrence of certain events specified in the lease, such as the tenant's insolvency.

A landlord can effect forfeiture either by peaceably re-entering the demised property or by commencing court proceedings for possession of the demised property. Forfeiture is subject to various statutory and common law limitations. So if you are a tenant and you are concerned your landlord could have grounds to take back possession of your business premises it is crucial you seek and obtain legal advice from an experienced dispute resolution solicitor or risk returning to your premises to find the locks have been changed or you have been made subject to expensive court proceedings both of which may have been avoidable if a dialogue had been opened between the parties legal representatives.

As a tenant the tenant should be aware that a landlord cannot enforce a right of forfeiture for breach of obligations in the lease, other than in certain cases including non-payment of rent, unless and until it has served a section 146 notice  giving the tenant a reasonable time to remedy the breach, if it is one that is capable of remedy. We can advise you on the validity and contents of a s146 notice.

  1. Rent disputes

 

It is becoming more and more common for there to be rent disputes, in particular due to Covid 19. Due to the current pandemic, many tenants with commercial leases are facing difficulties. In times of financial hardship it is fairly common for landlords and tenants to disagree over their rights and responsibilities, so it is important that both parties understand their lease, especially with regard to break clauses and forfeiture rights.

 

The Coronavirus Act, passed in March, set out some measures to ease the financial pressure on commercial tenants. One of the measures which will be in place until 31 December 2020 states that landlords cannot exercise forfeiture of a lease just because a tenant has not paid rent. However tenants should behave reasonably, and any non-payment or reduced rent should be negotiated and agreed with the landlord first, and recorded properly in writing so that future disputes do not arise.

 

As a tenant if you are unable to negotiate a reduced rent or a rent-free period and are unable to continue with your lease, then there may be some additional options available to you, depending on the terms of your lease. Exercising a break clause - if your lease has one - would be the easiest option, allowing you to terminate the lease on the given break date. However if this date is far in the future you may wish to try to negotiate an early exit with the landlord instead. If neither of these options are possible you may be able to assign your lease to a third party, but again this will depend on the assignment clause in your lease and any restrictions the landlord may have put in place.

 

 

  1. Break Clauses

 

Break Notices, also known as Break Clauses or break options, often allow a landlord or tenant to bring a Lease to an early end, depending on the wording of the break clause in the lease.

If you are a landlord who receives such a notice, then there is a correct procedure for the tenant to follow and you should make sure the tenant has done this. The tenant will need to have followed the correct procedure, in order to effectively exercise the break option, if the procedure is not followed correctly then the break notice may be invalid.

Tenants therefore should be extremely careful that a break notice is served correctly, if not this could jeopardize the break option and may make it invalid meaning the tenant would not be able to terminate the lease early.

 

What should I do as a tenant to make sure I serve the break notice correctly?

 

You must have the right to exercise the break clause. You will need to check the break clause wording in your lease. We would be happy to assist you with this; you need check if you are eligible to serve such a notice or not.

 

All that is usually required from the tenant is a notice to the landlord that notifies the landlord that you, the tenant are intending to exercise the right to break the lease in accordance with the lease terms. If you are eligible you can serve the break notice on the landlord, you should check who the landlord is under the lease and who is registered at the land registry as the landlord, this is extremely important. If notice is not served on the correct Landlord, then this will make the notice invalid.

 

You should note the notice should be served in duplicate and the landlord should be asked to sign and return the duplicate as acknowledgment of receipt.

 

Although this process appears relatively simple it is often very controversial, and the courts are often asked to clarify the validity of a break notice.

 

Often a tenant can only break a lease on a set date given in the lease, for example on the 3rd or 5th anniversary of the term, the failure to serve a valid notice in time can therefore have drastic consequences, if your break date is missed there may be no further opportunity in the lease to break this and the tenant will be bound by the lease until the end of the lease term. You must therefore pay extra care when considering the break clause of the lease and make sure you serve this at the right time.

 

As a tenant, you should also be weary of the break conditions, not only does the break notice have to be served on time but the break clause may give conditions upon which a break notice can be served for example, a break notice will only be valid in many cases if there is no outstanding rent and upon giving up vacant possession of the property. However, in some cases there may be additional conditions which must be meet. We would be happy to consider your break clause to confirm what conditions you must comply with before serving your break notice. Again, if the conditions are not satisfied then the break notice will not be valid

 

 

 

What should I do as a landlord if I receive a break notice?

 

As a landlord you will want to check the notice has been served in accordance with the terms of the lease and on the relevant dates and times as specified by the lease. You should also check the notice has been delivered correctly for example under the lease it will specify how the notice should be served this may be by hand or by post. Depending on what the lease states you will want to make sure that the notice has been served correctly and in accordance with the lease terms. You should also make sure that when the tenant serves such notice that if the notice is conditional then you will want to make sure the conditions have been satisfied. You will also want to make sure all the conditions of the lease such as any repairing obligations have been complied with. If the obligations are in the lease, then as the landlord you will want to enforce these before the tenant vacates.

 

 

If you are satisfied the notice has been served correctly then it would be wise to consider your next steps. If you would like us to check what obligations the tenant has prior to vacating the premises, we would be happy to discuss this with you along with the options you may have.

 

 

  1. Applications for licences to alter

 

Licence to Alter is the term given to the consent that a leaseholder requires before making certain alterations to a leasehold property. It is a formal, legal document that sets out the terms and conditions under which the alterations may be carried out. It ensures that no unexpected complications or conflicts will arise as a result of the work. it is important that all plans and drawings are drawn up and the correct legal document, documents the works and gives the landlords consent. If you do not get the landlords consent for certain works you may be in breach of your lease which could allow the landlord to forfeit the lease (please see above on forfeiture) we can assist with checking the terms of your lease and arranging for a licence to be drawn up.

 

  1. Licence to assign premises

 

It will often depend on the terms of the lease as to if and when the tenant can assign the lease. We would be happy to consider your lease terms and provide advice on the assignment clauses.   

Assigning a lease can be very complicated and often a lease requires the current tenant to do certain things, such as the following ( please note every lease is different and must be checked carefully):-

 

A lease may allow assignment on the following conditions:

  • The Tenant enters into and authorised guarantee agreement (AGA). 
  • The Tenant’s guarantor guarantees the Tenant’s obligations in the AGA.
  • The assignee gives direct covenants to the Landlord.
  • There is a guarantor for the assignee.
  • The assignee provides a rent deposit.

 

The key issue for many here is becoming an AGA, In the event that you wish to assign the lease you will be required to guarantee the assignment and would remain liable for the acts and defaults of the assignee throughout the remainder of the term. This includes, but is by no means limited to, the assignee’s failure to pay rent and service charges which can be recoverable from you in the event of the assignee’s default.  On an assignment, the deed of assignment may contain an indemnity from the assignee to you, to give some protection in the event of the assignee’s default and the landlord enforcing the guarantee given by you.  However, given the circumstances in which the assignee is likely to be in default will be inability to pay or insolvency, it may prove difficult to recover costs via the indemnity.  It is therefore in your interest to ensure that any assignee has the financial strength to pay the rents and comply with the tenant covenants under the lease. We are able to assist and advise you on this.

 

All content on this webpage are intended for general information only, and should not be construed as legal advice applicable to your particular situation.  No attorney-client relationship is created unless and until a binding written engagement letter is signed by both you and us. Before taking any action based on this website, you should consider your personal situation and seek professional advice.