Lease Termination

Lease Termination

Whether you decide to remain in your existing premises or move, those tenants who prepare their strategy well in advance of the end of their Lease will reap rewards particularly in the tenant’s market which currently prevails.

Different considerations apply depending on whether your existing Leases is within the Landlord and Tenant Act 1954 (“the 1954 Act”) or outside the 1954 Act. Now that the 1954 Act has been amended particular care needs to be taken.

What if my Lease is within the 1954 Act?

A lease within the 1954 Act can continue after the end of the contractual term unless the Landlord beings it to an end by serving a Section 25 Notice to Determine or the tenant beings it to an end by serving a Section 26 Notice Request for a New Tenancy. Both notices must give not more than twelve not less than six months notice and expire no earlier than the end of the contractual term.

  • If your premises are under-rented at the end of the term and you are confident that the landlord has no redevelopment plans for the premises and no other grounds for opposing renewal, it may well suit you to wait for the landlord to serve his Section 25 Notice. The landlord cannot increase your rent until he serves a Section 25 Notice on you. Service of that Notice will then enable the landlord to increase your rent six months after the date of his Notice by means of an interim rent application even if his Section 25 Notice specifies a later date for termination.
  • If your premises are over-rented, you can take the initiative and bring the tenancy to an end at the end of the contractual term by serving a Section 26 Request requesting a new tenancy.
  • Whichever notice is served, to fully protect your position under the 1954 Act, you will also have to make an application to the Court for a new tenancy before the date of termination specified in the landlord’s Section 25 Notice or your Section 26 Request. Under the 1954 Act, as now amended, you can now agree in writing with your landlord to extend the time by which your application to the Court can be made.
  • Having fully protected your position, you are still free to look around for cheaper or better accommodation whilst continuing the negotiations with your Landlord. The new Woolf Reforms to the 1954 Act Court procedures do mean that the Court processes are likely to move faster than they used to. But there is still scope for a tenant to “buy time” whilst alternative accommodation is considered and, possibly, negotiated in tandem with your existing Lease renewal negotiations.

If my premises are over rented, is there any other way I can reduce my rent?

Whether the Landlord has served a Section 25 Notice or you have served a Section 26 Request, under the 1954 Act, as now amended, you will be able to apply for an interim rent from a date six months after the Landlord serves his notice or you serve yours.

What issues should I negotiate on renewal of my 1954 Act Protected Lease?

The terms of most renewal leases will often follow the form of your existing Lease. But the three critical areas you will have most scope for arguing will be in relation to the following:

  •  Rent – The Landlord is only entitled to a market rent on renewal, disregarding any effect on rent of improvements that you have carried out to the premises during the previous 21 years. The rent is assessed at the date of the Court hearing. So, if your Lease renewal negotiations are pitching into a period where rents might be falling, as at present, then it may well make sense to use every trick to delay the matter coming to a Court hearing.
  • Break Clauses – The current market gives tenants great scope for negotiating a break clause with their Landlord in the renewal lease.
  • Rent Review – If your existing Lease contains rent review provisions, that review is likely to be upwards only. However, there is case law which does support a tenant’s claim for an upwards/downwards rent review on renewal, particularly where your existing tenancy has no rent review provisions. Furthermore, the Code of Practice on Commercial Leases, exhorts landlords to “offer alternatives to upward only rent reviews priced on a risk adjusted basis”. In practice, Landlords will strongly resist a claim for an upwards and downwards rent review. But such a claim may well enable you to negotiate a break clause in the renewal Lease.

 What if I want to end by 1954 Act protected lease?

  •  The 1954 Act, as now amended, allows a Tenant to determine his tenancy at the end of the contractual term either by giving the Landlord at least three months notice or by simply vacating before the end of the term. This will be the case even if a Section 25 or Section 26 Notice has been served and even if you have made an application to the Court for a new tenancy.
  • If you are still in occupation of your premises after the end of the contractual term, you can determine your tenancy at any time by giving your landlord three months notice expiring at any time.

 What if my Lease is excluded from the 1954 Act?

If your Lease is excluded from the 1954 Act your Lease will automatically come to an end on the last day of the contractual term. So, if you want to stay in occupation you will have to agree terms with your landlord well in advance of the end of the term either by signing a new Lease or entering into an Agreement for Lease.

If you are not confident your Landlord will agree satisfactory terms with you then you should start negotiating for alternative accommodation well in advance of the end of your Lease. The more advanced those negotiations are for alternative accommodation, the more genuine pressure you will be able to apply on your existing Landlord to agree satisfactory terms for a renewal of your existing accommodation.

What if I want to bring my existing Lease to an end by exercising a break clause?

If you decide to being your Lease to an end by exercising a break clause in your existing lease your Notice of Determination should follow the exact wording of the break clause. In addition, if your break clause requires conditions to be complied, then you must ensure that you have precisely complied with all those conditions set out in the clause by the dates specified in the clause, otherwise you may find your notice is invalid.

Conclusion

Whatever your circumstances, do seek good legal advice whenever you are planning to move, particularly now that the procedures have changed, with the substantial amendments to the 1954 Act. Prevention is better than cure! Remember that lawyers always make more money out of litigation when problems arise than advising you how to avoid those problems!

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.