Most lease renewals are governed by the Landlord and Tenant Act 1954, and the rules can be complicated and confusing. However, if your commercial lease is up for renewal, you want to ensure you get the most favourable terms for your business. In this article, we look at the key things to negotiate when renewing a commercial lease to help you understand what terms you might be able to change.
How do I renew a commercial lease?
If you would like to renew the lease on your commercial property, you must inform your landlord in advance of the lease coming to an end. Commercial tenants with leases protected by the 1954 Act have the right to renew their lease and can do so by serving the relevant statutory notice on their landlord. Alternatively, when the rental term is coming to a close, your landlord may choose to serve you with notice. Either way, you must be mindful of time limits to ensure you do not lose your rights to renewal or incur unnecessary costs. We always recommend that you instruct a solicitor to act on your behalf in relation to the service of the appropriate notices, to ensure that the procedure is correctly followed.
After notice has been served, you can enter into negotiations with your landlord. During the negotiation period, you may need to pay interim rent while the new lease terms are finalised.
What can I negotiate when renewing a commercial lease?
On a renewal governed by the 1954 Act, generally lease terms cannot be changed (other than in relation to the new market rent) unless there are fair and reasonable grounds for those changes. However, if you have had no problems during your tenancy, you may be in a strong position to negotiate more favourable lease terms with your Landlord. Suggested terms for negotiation include:
Reduction of rent / service charge reduction
If you are looking to renew your commercial lease, your first consideration should be to look at the current property market. There is a good chance that prices have changed since you signed your initial lease, and this could play in your favour when trying to negotiate a lower rent charge. With COVID-19 affecting businesses across the country and leaving numerous properties empty, tenants are currently negotiating their lease from a position of strength. If you feel that the rent you are paying is too high, you may wish to instruct a surveyor to determine the market value of the property. You can use this information to determine the true market value, as well as negotiate cheaper rent. Similarly, you may be able to negotiate a reduction in service charges.
Break clauses can be a vital tool for businesses facing difficulty or uncertainty. You may choose to include a break clause in your new lease as a provision which allows either party to end the lease before the end of the full term. There will be specific conditions which must be met in order to exercise a break clause, but a solicitor can help with ensuring a break clause is correctly drafted and exercisable when you need it most.
Typically, commercial leases last for three to five years, but depending on your circumstances, you may wish to negotiate a more favourable lease length. If you are on good terms with your landlord, they may be happy to agree a longer (or shorter) period or to be flexible around the duration of the lease.
If you are looking to renew a commercial lease, our experienced and skillful commercial property solicitors can help you get the results you need.