LEASE RENEWALS

The Landlord and Tenant Act 1954

Commercial leases in the UK typically either fall inside the Landlord and Tenant Act 1954 (”The Act”) or have been expressly excluded from the Act.

Leases Inside the Act

• The purpose of the Act is to provide tenants with security of tenure at the end of their lease. If your lease falls inside the Act you have the automatic right to renew your lease (subject to certain conditions).
• If your lease date has already expired and you wish to remain in occupation but neither you nor the landlord has initiated the renewal process your lease will continue automatically on the exact same terms.
• Although your office lease can continue automatically, you are able to enter into a new lease with an open market rent.
• Landlords can also approach you to initiate a renewal process. The landlord is likely to do this if they believe that market rents are likely to fall in the near future or if they require longer term security to increase the value of their property.
• To start the renewal process, you need to serve a request for a new lease on your landlord 6 months in advance. This request will set out the proposed lease terms (such as rent, length of term, break clauses) and the start date of the new lease.
• You will then have a period of time to negotiate the new terms with your Landlord. While most lease renewals are agreed between the parties, usually with the assistance of surveyors, if you cannot agree, you can apply to the Court to enforce an agreement.

Leases Outside the Act

• If your lease has been excluded from the Act, you do not have automatic right of renewal at the end of the term and unless a new lease is agreed with your landlord you will need to vacate your office at the end of the lease.
• If you wish to continue on in your current premises after the lease expires you can either agree to extend your lease on a rolling contract or a license agreement or negotiate a new lease with your landlord. Either way it is imperative that any arrangement for a new lease or an extension is agreed far in advance, to give you sufficient time to find alternative office space if you cannot agree terms with the landlord.

Covid-19 and its Impact on Lease Renewals

Covid-19 has inevitably had a significant impact on London’s office market. Over the past few months the level of demand for office space has fallen significantly. And while the government is planning a phased return back to work, there is evidence of falling rents across all London sub markets. This inevitably creates opportunities for Tenants who are looking to renew their lease with their current Landlord.

The uncertainty over the true impact of coronavirus on the office market makes preparing for a lease renewal exceptionally difficult. With minimal comparable transactions and only a few months of data to show how covid-19 is impacting rental levels its vital you consider your options carefully.

It’s important to decide whether lease security plus the opportunity of a reduced rent is more important than flexibility. If you wish to keep your options open in order to see how the market is likely to change as a result of the impacts of Covid-19 or you are not in a position to secure a new long term lease, (for those inside the Act) you may wish to hold off triggering the renewal process in the short term or (for those outside the Act) you may wish to agree a rolling extension or short term license agreement with your Landlord. However, if the certainty of securing a longer fixed term is important and you wish to benefit from the lower market rents that we are seeing now, then you may wish to begin the renewal process with your Landlord.

Our Services in Negotiating the New Lease
Whether your lease falls inside or outside the Act the need for professional representation to negotiate the best deal is vital to ensure you achieve the best possible terms and don’t risk failing to agree new lease with your Landlord thus finding yourself with a new office to move into.

Negotiations around a lease renewal can be a tricky and a lengthy process. We work for you to ensure the entire process is managed correctly, while negotiating the best possible terms with your Landlord. We typically negotiate the following:

• Rent
• Rent free period
• Service charge liabilities
• Incentives / capital contributions
• Lease length
• Rental Deposit
• Break options
• Rates and rights to appeal
• Rent reviews and conditions
• Alienation clauses – rights to sublet and assign
• Landlord capital contributions
• Schedule of condition
• Repairs, reinstatement and dilapidations

Contact us today to discuss your lease renewal or if you require general guidance on the current market and the impact that covid-19 is having.