Section 26 or Section 27: Should You Renew Your Commercial Lease or Walk Away?

Saba Ahmed, Associate at Ronald Fletcher Baker LLP advises clients on a broad range of Vermögensstreitigkeiten einschließlich Geschäftsmiete renewal matters. If you require advice in relation to any such matters, please contact Saba Ahmed via e-mail at saba.ahmed@rfblegal.co.uk or telephone at 020 3961 3118. 

Section 26 or Section 27: Should You Renew Your Commercial Lease or Walk Away? 

Your kommerziell lease is coming to an end. 

You have two very different choices: stay and negotiate a new lease, or leave and move your business elsewhere. For tenants whose leases are protected by the Vermieter and Tenant Act 1954, sections 26 und 27 provide two important statutory routes. 

Section 26 is essentially about saying: 

“I want a new lease.” 

Section 27 is about saying: 

“I want to leave.” 

Choosing between them can have significant consequences. 

Section 26: “I want to stay” 

If you want to remain in your premises, section 26 allows you to make a formal request for a new tenancy. 

This can be particularly useful where you do not want to wait for your landlord to make the first move. 

Perhaps you have invested heavily in your Gewerbeimmobilie, making relocation less appealing. 

Perhaps your customers know your business at that address. 

Perhaps moving would mean losing staff or disrupting the business. 

Or perhaps the Eigenschaft is simply difficult to replace. 

A section 26 request allows the tenant to start the statutory renewal process. 

But before unter one, you should be clear about what you actually want from the new lease. 

Don’t simply renew the old lease 

One of the biggest mistakes tenants can make is assuming that a lease renewal is just about agreeing a new rent. 

It isn’t. 

Your business may have changed significantly since the original lease was signed. 

You may now need: 

• a break clause; 

• a longer or shorter term; 

• greater flexibility to alter the premises; 

• wider rights to assign or sublet; 

• a different permitted use; or 

• changes to repairing or service charge obligations. 

A renewal is your opportunity to ask whether the lease still works for the business. 

If it doesn’t, now is the time to raise it. 

What happens after a section 26 request? 

Once a valid section 26 request has been served, the landlord has a statutory period in which to say that it intends to oppose the grant of a new tenancy. 

That is important because a section 26 request does nicht guarantee that you wird get a new lease. 

The landlord may have a statutory ground for refusing renewal. 

For example, the landlord may genuinely intend to redevelop the property or may have another ground of opposition under section 30 of the 1954 Act. 

The tenant therefore needs to understand the landlord’s position as well as its own. 

Section 27 is very different 

Section 27 is the exit route. 

If you have decided that the premises are no longer right for your business, section 27 may allow you to bring the protected tenancy to an end. 

For a tenant whose fixed term is coming to an end, section 27 provides a mechanism for preventing the tenancy from continuing under the 1954 Act. 

There is also a separate mechanism where the tenancy has already continued beyond the contractual term under the Act. 

The notice periods and termination dates are important, so the tenant should establish which statutory provision applies before serving notice. 

Should you use section 27 as a bargaining tactic? 

This is where tenants need to be careful. 

Imagine that your landlord wants to increase the rent significantly. 

You are unhappy with the proposal, and you want to renegotiate the lease terms. 

You tell the landlord: 

“If you don’t reduce the rent, we’ll leave.” 

That may be perfectly reasonable as part of a commercial negotiation. 

But actually serving a statutory notice to leave is a different Sache. 

Before doing so, you need to be confident that you are genuinely prepared to move. 

Have you found alternative premises? 

Can the business afford the relocation costs? 

Will you need planning permission or new licences? 

What happens to your staff? 

What will it cost to fit out the new premises? 

What happens to your customers? 

And what will you have to spend putting the existing premises back into the condition required by the lease? 

A decision to leave should be based on the whole picture, not simply the headline rent. 

What if you’re undecided? 

This is perhaps the most common situation. 

You know that your lease is approaching expiry, but you do not yet know whether staying or leaving is the right answer. 

You might be considering another property. 

You might be selling the business. 

You might be waiting to see what your landlord proposes. 

Or you might simply be unsure whether the premises will still suit you in five years’ time. 

This is precisely when you should be thinking about the statutory timetable. 

The worst outcome is to allow important dates to pass while waiting for the business decision to become clearer. 

Section 26 and section 27 are not interchangeable 

There is an important reason for deciding your strategy before serving a notice. 

The 1954 Act contains rules restricting the parties from simply moving between the different statutory routes once certain notices have been served. 

For example, a tenant cannot simply serve a section 26 request and then decide later that it would rather serve a section 27 notice. 

The legislation controls how the competing notices interact. 

This means that the decision is not something to make casually. 

Once you start the statutory process, your options may become more limited. 

What about the landlord? 

The tenant’s decision also needs to take account of the landlord’s position. 

If you want to stay, ask yourself: 

Does the landlord actually want me to stay? 

If the landlord has redevelopment plans, wants to occupy the property itself or has another potential statutory ground for opposing renewal, you need to understand that before committing to a renewal strategy. 

This is particularly important where the premises are critical to your business. 

You may need to consider a contingency plan in case the renewal is opposed. 

Don’t forget the cost of leaving 

It is easy to compare two rents and conclude that moving is cheaper. 

But the true cost of leaving can be much higher. 

Consider: 

Relocation costs — removals, professional fees and new premises costs. 

Fit-out costs — adapting the new premises for your business. 

Dilapidations — the cost of complying with your obligations under the existing lease. 

Business interruption — the effect of moving on staff, customers and operations. 

New lease costs — legal, valuation and other professional costs. 

Time — the management time required to relocate a business. 

The cheapest rent is not necessarily the cheapest option. 

And don’t assume staying is always best 

The opposite mistake is equally common. 

A tenant may have been in the same premises for twenty years and assume that renewing is automatically the right answer. 

It may not be. 

Perhaps the premises are now too large. 

Perhaps the rent is out of line with the market. 

Perhaps the Standort no longer suits the business. 

Perhaps the tenant could operate more efficiently from modern premises elsewhere. 

The 1954 Act gives qualifying tenants important protection, but protection does not mean that staying is necessarily commercially sensible. 

The renewal should be viewed as a business decision as well as a legal one. 

A simple way to approach the decision 

Before serving a section 26 or section 27 notice, ask yourself four questions. 

1. Do we want to stay? 

If the answer is yes, investigate the section 26 route and consider what terms you need from a new lease. 

2. Do we want to leave? 

If the answer is yes, establish how and when the tenancy can properly be brought to an end. 

3. Are we genuinely undecided? 

If so, do not rush into serving a notice simply because someone says the lease is “coming to an end”. 

Get advice on the timetable first. 

4. What happens if we get our preferred outcome? 

If you stay, what will the new lease need to look like? 

If you leave, where will the business go? 

Thinking about the end result can make the statutory decision much easier. 

The importance of timing 

The 1954 Act contains a number of strict time limits. 

A section 26 request has to specify an appropriate commencement date for the new tenancy. 

A landlord receiving a section 26 request has a limited period in which to oppose renewal. 

Section 27 also has specific notice requirements. 

Missing the relevant deadline can have serious consequences. 

That is why it is sensible to review the position several months before the lease expires rather than waiting until the final weeks. 

The key question isn’t “Which section should I use?” 

It is tempting to approach the matter as a technical question: 

“Should I use section 26 or section 27?” 

But that is not really the first question. 

The first question is: 

“What does my business need?” 

If the premises remain valuable to the business, section 26 may be the appropriate route to pursue a new lease. 

If the premises are no longer suitable, section 27 may provide the mechanism for an orderly exit. 

If you are unsure, the priority is to understand the timetable and preserve your options while you make the commercial decision. 

Schlussfolgerung 

The end of a commercial lease can be an opportunity rather than a problem. 

For some businesses, it is the chance to negotiate better terms and secure a new lease that reflects how the business has developed. 

For others, it is the right time to move on. 

Sections 26 and 27 provide important statutory mechanisms for making those choices, but the notice should follow the business decision — not the other way around. 

If you are approaching the end of a protected commercial lease, don’t wait until the final few weeks. 

Work out what you want, understand the deadlines and get advice before serving a notice. 

A little planning at the beginning can give you considerably more flexibility when it matters. 

If you need advice or assistance in relation to any of the above, please do not hesitate to contact Saba Ahmed, Associate at Ronald Fletcher Baker LLP, via e-mail at saba.ahmed@rfblegal.co.uk or telephone at 020 3961 3118.