Understanding how business leases operate is key if you are a business owner or property manager and rent commercial property for your business in the UK. You should particularly be aware of what is involved in renewing a business lease or what to do if you no longer need the property and need to end a business lease.
Ending, or indeed renewing a business lease is generally simple provided you appreciate the specific legal procedures involved and go about it in the right way.
Here we take you through our simple guide to commercial property leases to help steer you through the process.
Renewing a Business Lease
According to the Landlord and Tenant Act 1954, occupants of business premises have the legal right to stay in the building and can renew their lease when the term ends.
These rights can be legally enforced by the tenant, irrespective of whether those premises are medical surgeries or shops, factories and warehouses.
However, you should always expect exceptions to the rule. We’ve detailed some of these exceptions below.
Can a Landlord Refuse to Renew a Commercial Lease?
Business tenants will generally have the right to continue their tenancy agreement when it expires, but there are a few instances where the landlord of a commercial property can refuse to renew a licence or business lease.
For example, if a tenant is proven to have breached their tenancy agreement by failing to pay the agreed rent on time, or not at all, then a landlord has the right to refuse the renewal of a business lease.
When Is There No Automatic Right to Renew a Business Lease?
Some business occupiers do not automatically have the right to renew their lease; these include mining tenants, service tenants and farm business tenants. Tenants who also do not qualify for these automatic lease renewal rights include those who sub-let their premises and who are not residing at the property themselves, typically on fixed-term tenancies of six months or less.
Tenants using the premises for business purposes without making a declaration, will also not qualify. Renewal rights are also unlikely to be favourable for tenants who waive their right to renew at the start of the lease.
Examples where a commercial landlord can refuse a new business lease include where there is an equivalent property, for example, if the landlord has offered the tenant an alternative property that is equally suitable.
It can also be refused on the grounds that the landlord wants to demolish the building entirely and if the landlord in question wants to use the premises for himself and can prove to the court that he intends to use the building for his own business or for living accommodation.
There are also a number of other specific scenarios that may allow the landlord to refuse to renew a lease and these should be investigated further if you are concerned about your rights as a business tenant. If you are in doubt about your rights as a business occupier and those of the landlord, then we strongly recommend you seek professional advice.
Ending a Business Lease
As a commercial business tenant, you have the legal right to end a business lease before the agreed date, under certain circumstances. A business tenant may want to terminate a lease agreement prematurely for many reasons and if this is the case, there are ways and means of ending a business lease agreement early.
On a similar note, a commercial landlord also has the power to exercise early termination of a business lease.
A landlord may choose to do this if the tenant has regularly missed rental payments, or if the tenant continually breaks covenants set down in the lease agreement. Any prudent commercial tenant should ensure that there are no clauses in the lease that could see the landlord issue an early termination, before signing the lease.
From a renter’s point of view, ending a tenancy early may also occur if the landlord agrees to let the tenant terminate the lease early if the tenant is able to assign the lease to another business or they are able to sub-let.
Fixed Term Tenancy Agreements
A fixed term tenancy differs from other forms of commercial property rental agreements, so in order to end this type of agreement, it would be prudent to seek professional advice. If neither the landlord nor tenant has attempted to end the rental agreement, then the tenant can choose to either stay or leave at the end of the fixed term deadline.
Rents And Rent Reviews For Business Leases
It’s important that business owners also understand rental payments and rent reviews. Paying rent is straight-forward and is covered by specific clauses in the business lease. Commercial tenants agree on a figure with the landlord and sign a contract to pay this amount right up until the lease ends. Commercial rent reviews are more complicated and can have financial implications for the future.
Their frequency will be identified in the lease, and they normally occur every few years, such as every three or five years on a rolling basis. Commercial rent reviews are usually carried out on an official basis and there are set procedures for the landlord to follow that help to protect both landlord and tenant.
Disagreements over rent reviews are dealt with via arbitration and the courts and it is worth seeking professional legal advice at the earliest possible opportunity in this instance.
You should also seek advice if you are a business tenant and you want to terminate a lease early. Our solicitors are experienced in such matters and will be able to help and advise you on commercial property and other business lease termination issues.
Getting Professional Advice
As leading property consultants, Prideview can offer expert advice and support to clients interested in commercial property. Our solicitors can help with all of the commercial property issues outlined above.
Please contact us today to discuss how we can help you.