Negotiating the Renewal of a Commercial Lease
Most lease renewals are governed by the Landlord and Tenant Act 1954. However, if a commercial lease is due for renewal, the tenant will want to ensure they obtain the best terms for their business.
The tenant must notify their landlord that they wish to renew their commercial lease, prior to the lease coming to an end. Commercial tenants with leases protected by the Landlord and Tenant Act 1954 have the right to renew their lease and can do so by serving the relevant statutory notice on their landlord.
The landlord may alternatively choose to serve notice on the tenant when the rental term is coming to an end. Irrespective of who serves the notice, the tenant must be aware of time limits to ensure they do not lose their right to renewal or incur unnecessary costs.
After notice has been served, the tenant can negotiate the terms of the lease with the landlord. The tenant may need to pay interim rent while the new lease terms are being confirmed.
If the tenancy has been unproblematic, the tenant may be in a good position to negotiate more favourable lease terms such as:-
1. Rent and/or service charge reduction
The tenant should first consider the current property market as prices are likely to have changed since signing the initial lease. This could work in the tenant's favour when trying to negotiate a lower rent charge depending on market conditions. The global pandemic has affected businesses nationwide, leaving numerous properties vacant, which has placed tenants in a strong position.
If the tenant considers their rent to be too high, a surveyor can assist in determining the market value of the property. Depending on what the surveyor considers to be the true market value, this can be used to negotiate cheaper rent and possibly lower service charges.
2. Break clause
Including a break clause in a new lease allowing either party to end the lease before the end of the full term can be fundamental for a business facing uncertain market conditions. There will be specific conditions which must be met in order to exercise a break clause, however Chattertons' Commercial Property Team can assist with ensuring a break clause is exercisable when the tenant needs it most.
If the tenant has a good relationship with their landlord, they may be more flexible in agreeing to a lease term that better suits the tenant's needs.