When advising either landlords or tenants who are approaching the end of a lease on commercial property, we are often asked “What should I do?” advises Francis Tomlinson, Director of Aitchison Raffety. 

Our general advice is to assess the position early, although the situation will vary from case to case, and from time to time.  Importantly, it will also be influenced by whether or not the tenant is protected by security of tenure.

Security of Tenure

Security of tenure rights are available to tenants automatically under the Landlord & Tenant Act 1954, although such rights can be lost. This means that, with the exception of certain specific circumstances, a tenant can have an automatic right to a new lease at the end of the current one, generally on similar terms to the existing lease and at a current market rent. The lease will therefore not necessarily expire at the end of the contractual term but, rather, may be brought to an end at that dat, or subsequently, by the service of statutory notices either by the landlord or tenant. Such a notice will advise as to whether or not a new lease is offered, or sought. In the absence of such notices, and assuming that the tenant remains in occupation, the lease will continue on the existing terms and at the existing rent. However, some leases specifically exclude the tenant’s security of tenure, and this is quite common in short leases. Such leases expire at the end of the term with no tenant’s right to renew whatsoever. 

Advice To Tenants

In the current market, rents for some properties have dropped substantially and some very good deals can be negotiated on vacant properties. Assuming that tenants wish to stay, we would generally recommend that they open a dialogue with the landlord at an early date, whilst at the same time considering the alternatives available. Prudent landlords will be aware of market conditions and the likely outcome if a tenant should leave, and should be prepared to enter into a dialogue to reduce the rent if appropriate. In the event of the tenant having security of tenure, we would recommend that the appropriate statutory notices are served as soon as possible. In the event of the lease not having security of tenure, we would also recommend that action is taken in plenty of time, as otherwise tenants can find themselves in a weak negotiating position having no rights of renewal.

Advice To Landlords

The situation here is often something of a dichotomy.  Should a landlord serve the appropriate notices to bring a lease to an end (which may therefore result in the rent being reduced or the tenant leaving), or simply take no action, hope that the tenant is not alert to the forthcoming expiry of the lease, and allow the lease to continue as a Statutory Tenancy at the existing rent?  Individual situations will of course vary depending on the marketability and rental value of individual properties compared with the current rent and the mindset of the individual landlord. We appreciate that the passive option may be attractive, but it should be borne in mind that, in the event of the lease having security of tenure, the tenants will be able to leave at any time by serving 3 months notice after the expiry of the lease term. On the other hand, if the lease is excluded from the security of tenure provisions, then allowing the lease to run on past the contractual expiry date, and continuing to collect rent, can create a situation where security of tenure is obtained by the tenant, which in turn makes vacant possession far more difficult to obtain if required. Often our advice is to grasp the nettle, enter into negotiations with the tenant, and endeavour to secure a longer term lease, possibly at a reduced rent, or with other incentives being given.  After all, generally in this market, the last thing that most landlords want is an empty property which may lead to a potentially lengthy void period together with management costs and a nightmare of empty rates.

The above is, of course, general advice and circumstances will differ in individual cases. We would always recommend that specific advice should be obtained from a Chartered Surveyor or similar professional advisor.

For more information contact your local branch of Aitchison Raffety or see www.argroup.co.uk.