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Top 10 tips for a commercial lease renewal

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If you are a tenant occupying business premises or a landlord that owns an occupied commercial property, it is likely that you have entered into a lease.

 
A lease is a legally binding contract that gives the tenant the right to occupy and run their business from the premises for the period of the lease. When the lease term is close to expiring, the parties to the lease can enter into negotiations over the commercial terms of a new agreement which is referred to as a lease renewal.

Damian Gee, director in the Business Space Lease Advisory team at Colliers in Manchester discusses the top ten tips for you to consider ahead of the expiry of a commercial lease.

1. Check if the lease is inside or outside the Landlord and Tenant Act 1954

Landlord and Tenant Act 1954 provides that, at the end of the term of a business tenancy, a commercial tenant has the legal right to remain in the premises and an automatic right to a new lease subject to Section 30.

If the lease is outside the Act, it will be expressly stated within the lease, and we would recommend that this is investigated early, at least 12 months before the lease expires. If you are unsure whether your lease is inside the Act, we recommend that you appoint a surveyor who can advise you.

2. If inside the 1954 Act:

The Act provides commercial tenants, throughout England and Wales, with an automatic right to renew their lease subject to Section 30 of the Act. If the renewal process is not triggered by either party, then the existing lease will continue until it is brought to an end by either party.

3. If outside Sections 24 to 28 of the 1954 Act:

If the lease is contract outside the 1954 Act, it means the tenant has no statutory right to a new lease. However, a new lease can still be negotiated if both parties are willing. If this is the case, we would recommend that negotiations take place well in advance of the lease expiry date.

4. Know your Section 25 notices!

A section 25 notice can be issued by the landlord and sets in motion the formal process for renewing or ending the lease. There are two different types of notice – non-hostile or hostile:

Non-hostile - if the landlord wishes to retain the tenant and grant a new lease, they can serve a non-hostile Section 25 notice giving no less than six months’ notice with no more than 12 months’ notice. Even though this type of notice is viewed as “friendly” we would still recommend you get assistance from a qualified solicitor to offer advice and ensure you take the necessary steps to protect your position.

Hostile – if the landlord wishes to take the property back from the occupier, they can serve a hostile Section 25 notice, providing between six to 12 months’ notice. They must stipulate one of the grounds for opposition, known as a Section 30 grounds.

5. Know your Section 26 notices!

It is not only the landlord that can trigger the renewal process. The tenant can also trigger the renewal by serving a Section 26 notice, again providing no less than six months notice and no more than 12 months’ notice. A landlord is then given two months to object to a new lease by stipulating one of the Section 30 grounds.

6. Negotiating the new lease

If both parties are willing, then the negotiations can commence over the terms of the new lease. With regard to the new rent in the lease, it is important to have thoroughly researched the local commercial market to gain an understanding of current market rents.  This would include reviewing the rental value of surrounding similar properties.

7. Negotiating the length of the lease

The length of the new lease will generally be determined by transactions that have occurred on similar commercial premises. There will generally be a lease term and structure which is considered to be a “market lease” for a particular type of property in any market/location. It is possible that both parties can agree to a different length of lease but this will have an impact on the rent.

8. Negotiating the rent

The parties must also negotiate the rent payable and it is worth noting that the rent can go down, as well as up, depending upon the market conditions at the time of the lease renewal. The rent is reflective of market transactions so if rents for comparable premises in your local area have changed this should be reflected in your agreement.

9. Negotiating a break clause

Depending on the length of your lease, you may to consider adding a break clause to the lease. A break clause allows the specific party to end the lease before the expiry date, subject to satisfying any specific contractual conditions.

10. The rise of “green leases”

As legislation changes around the environmental impact of the built environment, it might be worth considering a green clause to the lease renewal. A green lease incorporates the responsibilities and obligations of both the owner and occupier. This could include, reducing energy consumption, sourcing sustainable energy, or reducing the waste produced.

To ensure you navigate your lease renewal successfully it is important to seek the advice of a suitably qualified surveyor, to assist you through the process. Our experts in the Business Space Lease Advisory Team are able to provide representation to make sure that you achieve the best possible outcome. We also recommend speaking to an experienced solicitor who will be able to take the appropriate legal actions if and when required.

View our Business Space Lease Advisory services

About the author:
Damian Gee is a director in the Business Space Lease Advisory team who has over 15 years’ experience working with commercial tenants and landlords in the specialist area of lease advisory.

To contact Damian, email damian.gee@colliers.com


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Damian Gee

Director

Business Space Lease Advisory

Manchester

Damian is a Director and head of the Business Space Lease Advisory team in the North. He has extensive experience in advising clients in the specialist fields of rent reviews, lease renewals and lease restructuring whilst also providing Expert Witness representation in Arbitration proceedings, Independent Expert Determinations and in Court on 1954 Act lease renewals. Damian specialises in the office and industrial/logistics section and has dealt with a number of large office buildings and big box logistic warehouses. His previous client's include high profile occupiers, property companies and institutional investors.  

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Devon Sherlock-Taylor

Graduate Surveyor

Business Space Lease Advisory

Manchester

Devon joined Colliers International in 2020.

Currently in the Business Space Lease Advisory Team. Advising a range of landlord and occupier clients regarding their rent reviews, lease renewals and lease negotiations within the industrial and office sectors, across the North of England.

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