Signing a commercial lease? Think the rent should be your only focus? Think again.
For business owners, a commercial lease is one of the crucial commitments their business will make. Experienced owners are often confident in negotiating rent, rent review and lease length, though one important question is sometimes overlooked: what happens when the lease comes to an end? A five-year lease does not necessarily mean you have to leave after five years, equally, you may not have an automatic right to stay either.
The Court of Appeal recently heard a case involving such issue, more specifically, on the clarification of whether a business tenancy containing a tenant’s option to renew is protected under Part II of the Landlord and Tenant Act 1954.

The case
Park Cakes Limited was the tenant of two commercial properties owned by companies within the Caterpillar group. The leases were due to expire on 13 June 2027. Each lease contained an option for the tenant to renew.
Caterpillar Property Ltd and another as the landlords argued that, because the leases already included a renewal option, section 28 of the Landlord and Tenant Act 1954 applied, meaning the tenant would lose the statutory protection under Part II of the Act.
The Court found for the Tenant and disagreed with the landlords.
The Court held that section 28 only applies where there is an enforceable agreement between both parties to grant a future tenancy. A tenant’s option to renew does not, by itself, create such an agreement because the landlord is not yet under a mutual obligation to grant the new lease until the option is properly exercised.
Commercial tenants can take some comfort on the Court’s ruling, that the option to renew did not remove the tenant’s protection under the 1954 Act. Notably there was no previous authority on this point.
The impact
The decision is important for business owners or commercial tenants: it confirms that having a renewal option in your lease does not automatically mean you have given up your statutory rights under the Landlord and Tenant Act 1954.
In short, there is a distinction between these two: an option to renew – the tenant has the right to choose whether to renew; and an enforceable agreement for a future tenancy – both landlord and tenant need to be legally committed to the future tenancy.
As you can see, the exact wording and structure of a commercial lease do matter a lot. A seemingly small provision can affect a tenant’s rights when the lease comes to an end. It is therefore advisable to take proper legal advice before entering or renewing your commercial lease.
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