Business lease renewals
May 28, 2014
If you have business premises, whether as landlord or as the tenant, there will come a point where you may need to renew the lease. If the new terms are not agreed between the parties, the Landlord and Tenant Act 1954 governs the procedure by which the courts themselves determine the new terms.
In our experience as business property solicitors, specialising in landlord and tenant, the terms that cause the most problems and protracted negotiations are length of the term of the new lease and the new rental.
Therefore we thought it useful to explain how the courts assess the respective parties’ competing interests and strike a balance when negotiations fail.
Length of lease?
The Tenant needs a term long enough to protect the carrying on of its business and goodwill whilst the Landlord looks to maximise the value and marketability of its property.
Section 33 of the Act provides that the lease term has to be such as is “reasonable in all the circumstances”. The investor Landlord normally wants the maximum term (14 years) with upward rent reviews as often as possible. The Tenant however normally wants the shortest term that, whilst enjoying ongoing statutory security, helps medium term business planning or alternatively a longer term but with a break option after a short period.
The courts have complete discretion in deciding what is reasonable for the actual landlord and tenant and not what is happening in the market generally which guides the Court.
The courts assess the rent at which the premises can be let in the open market by a willing Landlord, disregarding the sitting Tenant’s previous occupation and goodwill. Here the difficulty is obtaining comparable transactional evidence of rentals and again the final decision depends on how the court subjectively weighs the quality of the available evidence.
From the above, you will see the uncertainty of the outcome. Both Landlord and Tenant should be aware of the need to consider the costs of resolving issues by litigation, the risks of unfavourable decisions, the stresses involved and the ongoing Landlord and Tenant relationship. With uncertain markets, mediation and other alternative dispute resolution mechanisms need serious consideration.
Rose Manuel, commercial property solicitor, in our offices in Bromley has nearly 30 years’ experience in negotiating deals on behalf of Landlords and Tenants in order to find cost effective outcomes for his clients. For further advice please contact Rose and our property team on 020 8313 1300 020 8313 1300 or firstname.lastname@example.org and she will be happy to help and guide you.
The information contained in this article is intended for general guidance only. It provides useful information but it is not a substitute for obtaining legal advice as the articles do not take into account specific circumstances. So do please Contact US for legal advice on the issues raised.