Renewing Business Leases & Commercial Property Leases – A Guide for Landlords and Tenants

This article explains the procedures involved when either a landlord or tenant wishes to renew a business lease under the Landlord and Tenant Act 1954 (LTA 1954). 

Does a Business Tenant’s Lease Terminate at the End of the Term or Renew Automatically? 

A tenancy protected by the LTA 1954 does not terminate automatically at the end of the contractual term. 

Subject to certain exceptions, a tenant occupying premises for business purposes has security of tenure. This means the tenancy will continue as long as the tenant remains in occupation until it is lawfully determined in accordance with the LTA 1954. 

A tenant that occupies premises for the purposes of its business with a fixed-term tenancy also has a statutory right to a new lease at the end of the contractual term, provided that Part II of the LTA 1954 applies and the lease has not been contracted out of its security of tenure provisions. 

What Does It Mean If a Business Tenant’s Lease Is Contracted Out of the LTA 1954? 

Section 38A(1) of the LTA 1954 allows “the persons who will be the landlord and the tenant in relation to a tenancy to be granted for a term of years certain” to agree that sections 24 to 28 of the LTA 1954 (the security of tenure provisions) will be excluded in relation to that tenancy but it should be noted that the proposed tenancy must be for a term of years certain and the correct procedure must be followed. 

The effect of contracting out is that: 

• The tenant has no right to remain in the property after the lease expires. 

• The tenant must vacate the property at the end of the lease unless the landlord offers a new lease. 

• The tenant has no right to compensation upon leaving the property at the end of the lease. 

• The tenant has no right to ask the court to determine the rent or terms of a new lease if the landlord offers one. 

What Is the Process for Renewing a Commercial Lease? 

It is open to the landlord and tenant to voluntarily enter into negotiations in an attempt to reach agreement on the terms of a renewal lease. Whether an agreement can be reached will depend on the approach taken by the parties. If the parties agree all the terms of the new lease, they can grant the renewal lease without requiring a court order. The majority of the lease will usually be negotiated by the parties without resorting to the court.  

It is best to start renewal discussions well in advance of the expiry of the lease. This will ensure there is enough time to negotiate any dispute over the rent and other terms of the renewal lease.   

Negotiations typically commence when either: 

• The landlord serves a Section 25 notice indicating that they do not oppose the grant of a new lease, or 

• The tenant serves a Section 26 request seeking a new tenancy. 

The proposed terms of the new lease are set out in the schedule attached to the Section 25 notice or Section 26 request. If an agreement is not reached voluntarily, specific procedures and deadlines must be followed, as detailed below. 

How Does a Landlord Renew a Commercial Lease? 

A landlord can initiate lease renewal by serving a Section 25 notice on the tenant. To be valid, the notice must: 

• Be in the prescribed form. 

• Be served by the competent landlord. 

• Be correctly addressed to the tenant. 

• Be validly served within the statutory timeframe (not more than 12 months and not less than six months before the specified termination date). 

The termination date in the notice cannot be earlier than the contractual expiry date of the current lease. 

Once served, a valid Section 25 notice cannot be unilaterally withdrawn or amended by the landlord. 

If the landlord intends to oppose the renewal, a different prescribed form must be used. 

How Does a Tenant Renew a Commercial Lease? 

A tenant can initiate renewal by serving a Section 26 request on the landlord. This request must: 

• Be in the prescribed form. 

• Set out the proposed terms of the new lease in the attached schedule. 

Service of a Section 26 request does not oblige the tenant to take a new lease, but it triggers the renewal process. The tenant may serve a request before the contractual term ends or after, if the tenancy is continuing under the LTA 1954. 

A Section 26 request: 

• Notifies the landlord that if the terms of the new lease are not agreed, either party may apply to the court for determination. 

• States that if the landlord wishes to apply to the court for a new tenancy, it must do so before the commencement date specified in the tenant’s request (unless the parties agree otherwise). 

• Informs the landlord that opposition to the renewal is only permitted on one or more of the grounds set out in Section 30(1) of the LTA 1954. 

• Requires the landlord to serve a counter-notice within two months if it intends to oppose the renewal. Failure to do so means the landlord must grant a new tenancy. 

• Ends the current tenancy the day before the proposed start date of the new lease. 

When Should an Application to Court Be Made for a Renewal Tenancy? 

If the parties cannot agree on the terms of the new lease, either can apply to the court for an order granting a new tenancy under Section 24(1) of the LTA 1954. 

To protect their rights, tenants must apply within the statutory deadline. The application process depends on how renewal was initiated: 

• Landlord-initiated renewal – Either party can apply to the court once a Section 25 notice has been served. 

• Tenant-initiated renewal – Neither party can apply until the landlord serves a counter-notice or two months have passed since the Section 26 request was made, whichever is earlier. 

Most lease renewals are negotiated without court involvement. However, if an agreement is reached, it should be recorded in writing. 

The landlord and tenant may also agree in writing to extend the court application deadline, provided this is done before the expiry date. 

If the deadline is approaching and no binding lease or agreement for lease has been reached, the tenant should apply to court to preserve their statutory right to a new lease. 

How Does the Court Decide on Lease Terms If the Parties Cannot Agree? 

If the parties fail to agree on renewal terms, the court will determine the lease’s provisions based on the evidence presented. The court’s decision will cover: 

• Rent 

• Lease duration 

• Landlord’s redevelopment break clauses 

• Tenant break clauses 

• Permitted use 

• Pandemic rent suspension clauses 

• Service charges 

• Alienation and authorised guarantee agreements 

• Guarantors 

• Rent deposits 

Business Lease & Commercial Property Lease Solicitors – Contact Us 

If you have any queries regarding a business or commercial property lease renewal, please contact Partner David Burns by email at D.Burns@rfblegal.co.uk or by phone on 0207 467 5751.