When the lease of a commercial shop or business premises is coming to an end, many tenants feel uncertain about what happens next. Common questions include: Can I stay? Will the rent increase? What if the landlord refuses to renew the lease? The good news is that, in the UK, commercial lease renewal is governed by a clear legal framework. With the right preparation and advice, both tenants and landlords can manage the renewal process in a structured and commercially sensible way.
This article outlines the key aspects of commercial lease renewal, including the difference between leases inside and outside the Landlord and Tenant Act 1954, the role of statutory notices, and the main issues typically negotiated during renewal discussions.
Open Leases and Closed Leases
One of the first and most important points to establish is whether the lease is “inside” or “outside” the Landlord and Tenant Act 1954.
A lease inside the Act (often referred to as an “open lease”) gives the tenant security of tenure. This means the tenant has a legal right to apply for a new lease when the current one expires, and the landlord can only oppose renewal on limited statutory grounds, such as redevelopment or intention to occupy the premises themselves.
A lease outside the Act (commonly known as a “closed lease”) does not offer this protection. In these cases, the tenant has agreed to contract out of the Act, meaning there is no automatic right to renew. Once the lease expires, the landlord may require the tenant to leave or may offer a new lease on entirely new terms.
Understanding whether a lease is inside or outside the Act is essential before any renewal discussions begin, as it fundamentally affects the rights and negotiating positions of both parties.
Section 25 and Section 26 Notices
Where a lease is inside the Landlord and Tenant Act 1954, the renewal process is governed by formal statutory notices.
A Section 25 notice is served by the landlord and can either propose terms for a new lease or state that the landlord intends to oppose renewal on one of the permitted legal grounds.
A Section 26 notice is served by the tenant and requests the grant of a new lease, usually setting out proposed terms such as rent, lease length and commencement date.
Both notices are subject to strict legal requirements and must be served within specific timeframes, typically between six and twelve months before the lease expiry date. Once a notice has been served, the parties usually enter into negotiations. If agreement cannot be reached, either party may apply to the court to determine the terms of the new lease.
Because errors in timing or form can have serious consequences, early legal advice can be invaluable in ensuring notices are served correctly and that a party’s position is properly protected from the outset.
What Happens If the Lease Expires Before Renewal Is Finalised?
It is very common for a commercial lease to expire before a new lease has been formally completed. While this often causes concern for tenants, the legal position is usually more straightforward than expected.
If the lease is inside the 1954 Act, the tenant will generally benefit from statutory continuation, meaning they are entitled to remain in occupation on the same terms (except for rent) until the renewal process concludes. This arrangement is also often commercially attractive for landlords, as it avoids vacant premises and loss of income.
However, one important point to be aware of is rent adjustment. Once the new lease terms are agreed or determined by the court, the revised rent is often backdated to a specified date, commonly the lease expiry date or the date stated in the statutory notice. If the new rent is higher, the tenant will usually be required to pay the difference for the interim period.
Legal advisers can help both tenants and landlords assess potential rent exposure at an early stage, allowing for better financial planning and fewer surprises later in the process.
Key Issues to Consider During Commercial Lease Renewal
A lease renewal is not simply a legal exercise; it is also a commercial negotiation. Some of the most common issues addressed during renewal discussions include:
Rent
Rent is often the central issue and is typically assessed by reference to current market conditions rather than the existing rent. Comparable evidence from similar properties is commonly used to support negotiations.
Lease length
Tenants may seek longer terms to provide business stability, while landlords may prefer flexibility. The agreed term often reflects the parties’ respective commercial objectives.
Repair and maintenance obligations
The allocation of repairing responsibilities, particularly for structural elements, can have significant long-term cost implications and should be clearly defined.
Rent review provisions
For longer leases, it is important to agree how and when rent reviews will take place during the term of the new lease.
Careful negotiation of these points can help reduce the risk of future disputes and ensure the renewed lease works in practice for both parties.
How Lisa’s Law Solicitors Can Help
Commercial lease renewal involves a combination of statutory procedure, negotiation and commercial judgment. Our solicitors regularly advise both tenants and landlords on all aspects of lease renewal, providing clear, practical guidance tailored to each client’s objectives.
We assist with reviewing existing lease terms, advising on security of tenure under the Landlord and Tenant Act 1954, preparing and responding to Section 25 and Section 26 notices, and negotiating key commercial terms such as rent, lease length and repairing obligations. Where agreement cannot be reached, we also provide support in connection with court applications, always with a focus on achieving a proportionate and commercially sensible outcome.
Final Thoughts
Renewing a commercial lease does not have to be uncertain or contentious. By understanding the legal framework and addressing key issues early, both tenants and landlords can approach the renewal process with greater confidence.
Seeking tailored legal advice at an early stage can help protect your position, avoid unnecessary disputes, and ensure the renewal process proceeds as smoothly as possible.
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