Sameer Karim
Senior Partner & Solicitor
12 Jan, 2011

Advice to Tenants

If you have a business Lease that is about to come to an end you do not necessarily have to leave the premises and you may well be entitled to demand a new Lease on better terms.

The Landlord & Tenant Act 1954 raises a presumption that a Tenant who occupies premises for their own business has a right to a fresh Lease on similar, but updated terms to their present Lease.

The type of terms which would be updated are the market rent and any other terms which perhaps reflect recent changes in the Law or general market practice.

A Tenant should always check whether their Lease has the benefit of the protection of the 1954 Act.

Generally speaking, a Lease will have that protection unless either a Court Order or certain other Notices, warning that the Lease is excluded from the protection of the Act, have been served on the Tenant prior to the Tenant entering into the original Lease.

If you are not the original Tenant, i.e. you acquired the Lease part way through its term or if you cannot remember whether the Act applies, then it is worth checking the Lease, because if it has been excluded from the protection of the Act a brief paragraph to that effect should appear somewhere within the Lease.

Provided that you have the protection of the Act your Lease will not automatically come to an end unless you either voluntarily choose to leave on or before the expiry of the Term or the Landlord has served at least six months notice to quit upon you, in a form expressly prescribed by law.

If the Landlord serves a notice to quit, and you want to stay on, you should take advice if you don't want to lose your Tenancy, because there are strict deadlines to be complied with, even if the Landlord has offered to let you have a new Lease.

If you have not had a notice served on you and simply stay on at the premises, you will enter into a period known as "Holding Over". In effect this means that all the terms of the Lease that were applicable at the end of the original Lease, such as for example the passing rental, will continue to have effect until either you vacate, or a new Lease is agreed or granted by the Court.

There are dangers for a Tenant who wants to stay on for just a few days after the end of the original term. Once you enter into the "Holding Over" period, if a Tenant wishes to quit they must serve on the Landlord a notice and the length of notice required is a "Payment Period", the notice must also expire at the end of a payment period. If the rent is paid quarterly then the Payment Period is one quarter (i.e. 3 months) and the Quarter Dates are Christmas Day, 25th March, 24th June or 29th September.

If for example, a Tenant tried to break out of a Holding Over period in January, the earliest possible date that Notice to Quit would expire would be as 23rd June.

Holding over has the advantage that the Tenant doesn't necessarily have to make the longer commitment to a fresh Lease, but on the other hand a Tenant may want the certainty of having a fresh Lease. Either the Tenant or the Landlord may apply to the Court for a new Lease to be granted.

In current market conditions a Tenant wishing to stay on may well wish to make their application to the Court as quickly as possible if the market rental is less than the rent under the Lease. This is because, unlike a rent review within a Lease, which is almost invariably on an "upwards only" basis, the Court can and will grant a Lease at lower than the current passing rental if the market rental is lower. The majority of the commercial property sector is now achieving rentals significantly lower than what was being achieved three years ago. The expiry of a Lease could therefore be a perfect opportunity for a Tenant to force their Landlord to agree anew Lease at a reduced rent.