Recently, we have received many enquires about commercial lease renewal procedure. These questions are commonly asked. As a result, it is worth discussing the various aspects of commercial lease renewal procedure.
In English law, there are two primary processes for extending the term of a commercial lease: granting a new lease and lease renewal by reference. Keep reading for a breakdown of the difference between the two.
Granting a New Lease
- Lease Terms: When granting a new lease, the parties negotiate and agree upon the terms of the lease afresh. This includes the length of the lease, rent, break clauses, repair obligations, and any other relevant terms.
- Rent Review: The new lease often incorporates provisions for rent reviews, allowing the rent to be adjusted periodically during the term based on agreed-upon mechanisms (e.g., market value, fixed percentage increase).
- Tenant’s Security: Granting a new lease provides the tenant with the opportunity to secure a longer-term commitment from the landlord, providing greater stability and continuity for their business operations.
- Negotiation: The negotiation process for a new lease can be more open-ended, allowing for potential changes to the terms and conditions based on the specific requirements of both parties.
Lease Renewal by Reference
- Existing Lease: Lease renewal by reference refers to the process of renewing an existing lease by incorporating the terms of the original lease, as varied and updated with statutory provisions.
- Security of Tenure: Lease renewal by reference is typically carried out under the provisions of the Landlord and Tenant Act 1954, which grants tenants the right to renew their leases at the end of the contractual term. This helps provide security of tenure for commercial tenants.
- Statutory Protections: Lease renewal by reference ensures that the tenant continues to benefit from the rights and protections provided under the original lease and the Landlord and Tenant Act 1954, such as compensation for disturbance and the ability to apply for a new lease if the landlord opposes renewal.
- Limited Variation: While lease renewal by reference incorporates the existing lease terms, it allows for some flexibility in making amendments. The parties can negotiate any necessary updates or changes to the lease terms during the renewal process.
Our thoughts
It’s important to note that the process of lease renewal by reference is subject to strict statutory procedures and timelines outlined in the Landlord and Tenant Act 1954. These procedures dictate the notices required, the timing of responses, and the circumstances in which the landlord can oppose the renewal. Additionally, lease renewal by reference may not always be available if the lease is contracted out of the protections provided by the Act.
A point to note is that a simple variation of the existing lease to extend the term would not be the proper way for lease extension, and it may trigger unfavourable consequences.
We will be happy to provide such legal advice to navigate the complexities of lease extension to suit your specific circumstances.
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