We have recently received many enquiries about commercial lease renewal procedure, as well as issues around a lease extension not being granted. This can cause a great deal of stress and anxiety for business owners regarding their future.
But what reasons can a landlord use to dispute a lease extension? Keep reading to find out more.
Granting of a new lease
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.
For the process of granting a new lease, the parties negotiate and agree upon the terms of the lease and security of tenure afresh. 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).
Lease renewal by reference
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.
However, it may be the case that neither extension or renewal appeals to the landlord, and they seek to gain vacant possession. If the lease falls under sections 24-28 of the Landlord and Tenant Act 1954, which is the case for many leases, the tenant has an automatic right to extend. This right can only be challenged if the landlord successfully presents one of the statutory exemptions.
Section 30(1) Landlord and Tenant Act 1954
This section provides the grounds for evicting a tenant based on tenant fault and no-fault grounds.
1. Tenant fault grounds (A-C):
- A: Property in disrepair
- B: Persistent delays in rent payment
- C: Breach of other lease obligations by the tenant
2. On the other hand, no-fault grounds (D-G) allow landlords to reclaim possession for reasons unrelated to tenant misconduct:
- D: Suitable alternative accommodation available
- E: Sub-letting issues where the superior landlord needs possession
- F:Landlord plans to redevelop the property, making tenant occupation impossible
- G: Landlord intends to use the property for themselves
Each ground has specific evidentiary requirements. If a no-fault ground is used, the tenant may be entitled to compensation based on the property’s ratable value and their duration of occupancy.
That said, we would highlight a precedent case for opposing a lease extension. Gill (as trustee of the Gillcrest UK Pension Scheme) v Lees News Ltd, was a case in which the tenant sought a new tenancy under section 26 of the Act.
However, the landlord opposed, citing multiple grounds (A, B, and C). The tenant challenged this opposition, initiating court proceedings to secure the new lease. Prior to the hearing, the tenant made good on the disrepair issues raised by the landlord. On appeal, the judge emphasised that the timing of the tenant’s remediation is crucial, but the overall history of the tenant’s performance throughout the tenancy should also be considered.
What factors determine whether a tenant should be granted a new lease
The court highlighted three key factors in determining whether the tenant should be granted a new lease:
1. Breaches should be assessed collectively rather than individually, as multiple smaller breaches can collectively justify opposition.
2. The fairness to the landlord in having to grant a new lease is essential, alongside consideration of the tenant’s potential hardship.
3. The tenant’s conduct during litigation can be a significant factor in extreme cases.
The tenant’s current compliance and their historical conduct in tenancy disputes are to be considered as a whole when opposing the extension.
We would be happy to provide relevant legal advice to navigate the complexities of such a procedure to suit your specific circumstances.
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