Renewing or ending a business lease

Renewing or Ending a Business Lease – Commercial Property Guide

If you are a business owner or property manager and rent commercial property for your business in the UK then you should understand how business leases operate, especially what is involved in renewing a business lease or if you no longer need the property, how to end a business lease.

Ending, or indeed renewing a business lease is usually pretty straight-forward, but only providing you understand the specific legal procedures involved and go about it in the correct way.

However, if you are unsure of how to end or renew a business lease then this simple commercial property guide will help steer you through the process – and in the easiest possible way.

It will also outline why certain procedures need to be followed, and offers a quick run-down of tenants’ rights and responsibilities as far as commercial property and business leases go.

Renewing a Business Lease

First of all, we’ll review who gets the right to renew a business lease, the landlord, tenant or someone else.

According to the Landlord and Tenant Act 1954, occupants of business premises have, by law, the opportunity to stay in the building and they can renew their lease when the term ends.

Irrespective of whether those premises are medical surgeries or shops, factories and warehouses, these rights can be legally enforced by the tenant.

As with all things however, you should always expect exceptions to the rule and in this instance there are a few to consider.

When is there no Automatic Right to Renew a Business Lease?

Some business occupiers including mining tenants, service tenants and farm business tenants for instance do not automatically have the right to renew their lease.

You should also be aware that tenants who have sub-let their premises and who are not residing at the property themselves, typically on fixed term tenancies of six months or less, and tenants using the premises for business purposes without making a declaration, will also not come under this “umbrella” of automatic lease renewal rights.

Renewal rights are also unlikely to be favourable for tenants who waive their right to renew at the start of the lease.

Can a Landlord Refuse to Renew a Commercial Lease?

It is worth bearing in mind however, that there are instances where the landlord of a commercial property can actually refuse to renew a licence or business lease.

As already mentioned, business tenants will generally have the right to continue their tenancy agreement when it expires, but under certain extreme cases landlords do have the power to refuse to renew a lease.

For example, if a tenant is proven to have breached their tenancy agreement by failing to pay the agreed rent on time, or not at all, then a landlord has the right to refuse the renewal of a business lease.

Other examples where a commercial landlord can refuse a new business lease include:

  • Landlords Own Use

    If the landlord in question wants to use the premises for himself and can prove to the court that he intends to use the building for his own business or for living accommodation.

  • Equivalent Property

    If the landlord has offered the tenant an alternative property that is equally suitable.

  • Demolition

    If the landlord wants to demolish the building entirely.

There are also a number of other specific scenarios that may allow the landlord to refuse to renew a lease and these should be investigated further if you are concerned about your rights as a business tenant.

If you are in doubt about your rights as a business occupier and those of the landlord then we strongly recommend you seek professional advice.

Ending a Business Lease

Now that we’ve covered a few examples of who is and who is not allowed to renew a commercial tenancy agreement it is only right that we discuss and highlight the process of ending a business lease.

As a commercial business tenant you legally have rights and you should make yourself aware of these.

One of these legal rights is the ability, under certain circumstances to end a tenancy agreement before the agreed date.

There are many reasons why a business tenant may want to terminate a lease agreement prematurely, but whatever the reasons behind the decision there are ways and means of ending a business lease agreement early.

Similarly, you should also note that a commercial landlord also has the power to exercise early termination of a business lease.

A couple of reasons why a landlord may choose to do this include: if the tenant has regularly missed rental payments, or if the tenant continually breaks covenants set down in the lease agreement.

Before signing a business lease, any prudent commercial tenant should also ensure that there are no clauses in the lease that could see the landlord exercise an early termination.

From a tenant’s perspective, ending a tenancy early may also occur if the landlord agrees to let the tenant terminate the lease early, if the tenant is able to assign the lease to another business or they are able to sub-let.

Getting Professional Advice

Of course, it is recommended that if you are a business tenant and you want to terminate a lease early, you seek professional legal advice at the earliest possible opportunity.

You should ideally look to appoint a solicitor experienced in such matters, as they will be able to help and advise you on commercial property and other business lease termination issues.

Fixed Term Tenancy Agreements

A fixed term tenancy is a little different to other forms of commercial property rental agreements, so in order to end this type of agreement you should ideally seek professional advice.

Generally though, if neither the landlord nor tenant has attempted to terminate the rental agreement, the ball is usually in the tenant’s court as they can choose to either stay or leave at the end of the fixed term deadline.

Rents & Rent Reviews for Business Leases

Another big area that requires careful consideration when looking at business leases is rental payments and rent reviews.

Paying rent is pretty straight-forward and will be a covered by specific clauses in the business lease.

As a commercial tenant you will have agreed a rent with the landlord and will have to pay this amount right up until the lease ends, all in accordance with the lease signed at the outset.

Commercial rent reviews however, may be unfamiliar to many outside of property circles but as a tenant of commercial property they are something that you will need to understand as they can have financial implications for the future.

The frequency of any rent reviews will be identified in the lease, and they normally occur every few years, for example every 3 or 5 years on a rolling basis.

Commercial rent reviews are usually carried out on a formal basis and there are set procedures for the landlord to follow that help to protect both landlord and tenant.

Any disputes over rent reviews are dealt with via arbitration and the courts.

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Further reading…

More information about renewing and ending a business lease for tenants and landlords… here →

More information about ending a commercial property lease early… here →