A commercial lease is based on contract law and a contractual agreement between landlord and tenant. The rules laid down are those as agreed in the lease agreement and majority of the time are not burdened by statutory rules of the Landlord and Tenant Act 1954 Part II.
This commercial lease agreements covers:
- the rent to be paid
- the tenant’s responsibilities
- the landlord’s responsibilities
- an optional break clause
- security of tenure so that the tenant does not have an automatic right to stay at the property at the end of the term
In England & Wales, when a commercial business lease comes to an end, that’s when statutory rules start to apply. Under the statutory rules laid down, a business tenant has the security of tenure – i.e., most tenants have an automatic right to renew their lease at a revised market rent on similar terms to the original lease.
When is the best time to renew a commercial property lease?
If your commercial property lease is coming to an end soon and you want to renegotiate it, the best time to do this is between 6 to 12 months before its end date.
This rule generally applies to both tenants & landlords.
You can read our article about the lease renewal process timelines here:
Managing Your Relocation: The Legal Part
What is the trigger for the lease renewal process?
Landlord’s view:
The landlord can serve a Section 25 notice not more than 12 months and not less than 6 months before the date upon which the landlord wants the current lease to end. The landlord cannot bring the lease to an end before the lease expiry date.
Tenant’s view:
The tenant can serve a Section 26 notice not more than 12 months and not less than 6 months before the date upon which the tenant wishes a new lease to begin. The tenant cannot begin a new lease until after the expiry date of the existing lease.
A tenant is legally entitled to propose terms, but if both parties cannot reach an agreement on what is ‘fair’, either one can apply to a court to set them.
How to best go about the lease renewal process?
Whilst a landlord is legally allowed to deal directly with a tenant, negotiations are usually carried out by a Chartered Surveyor or a valuer on their behalf.
Generally, the main principle is that the previous lease (if available) is used as the starting point for the terms which could be included in the new lease. Other factors, such as comparable rents for similar nearby locations, are also taken into account.
In our experience, it’s important for clients to show a flexible attitude and transparency from the outset as this often helps negotiations to run smoothly.
We would strongly advise enlisting the professional services of a rent review surveyor or advisor.
Such an expert can:
- Help you research the local rental market, value your property, and objectively determine the rent you should be paying
- Negotiate with your landlord on your behalf
Hiring professional help will of course be more expensive than doing it yourself, but an advisor/surveyor should easily make up for what they’ve cost by securing you the best rent possible.
Our aim is to help you take the right course of action that’s best for your business.
When entering into a lease renewal, we usually:
- Conduct a valuation of the property
- Negotiate terms for renewing the lease
- Negotiate with the landlord and/or tenant
- Liaise with the solicitors of both parties
If you cannot come to a mutual terms agreement, we can help you to form alternative plans.
What if the landlord & tenant decide not to renew the lease?
If a landlord decides not to renew the lease, we can help to market the property or we can help a tenant to search for other premises if they choose to relocate.
Generally, the main principle is that the previous lease (if available) is used as the starting point for the terms which could be included in the new lease. Other factors, such as comparable rents for similar nearby locations, are also taken into account.
Summary:
In order to avoid being caught out, and give yourself as much time for review and future lease negotiations, we recommend that you:
- check the expiry dates for your lease
- start reviewing your lease terms at least 12 months before its expiry date
You can read more about how we can support both Landlords and Tenants when it comes to negotiating your existing or new lease terms.
We are here to lead you every step of the way. For more information regarding Managing Your Relocation, CLICK HERE and read our comprehensive checklist.
DO GET IN TOUCH WITH US:
Head Office
T: 02382 355799
Nella Pang, Director
T: 07738 625 431
E: nella@omega-re.co.uk
Jonathan Trice, Director
T: 07725 900 415
E: jonathan@omega-.re.co.uk
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About Omega RE
Omega RE is a commercial property advisory firm based on the South Coast. Providing expert advice to Landlords, Occupiers in the industrial, office and retail markets.
Omega RE is always thinking ‘Outside the Box’ in our advice to clients and the way we do business. We don’t settle for mediocre, we challenge the norm and are dedicated to finding solutions that is best for our clients.
We are a people business, based on strong relationships and partnerships, and we offer a personal level of service.
As the market evolves, we will too adapt to be successful and want the same for our clients. We are committed to finding innovative ways of marketing and how to do things more efficiently.
We will never stagnate.
We are disciplined in everything we do, we take time to understand the situation and set a bespoke strategy for each client. Not one size fits all. We do not cut corners or take shortcuts and our integrity is undisputed.
Providing clients’ a hands on approach to finding the perfect property; office, industrial, warehouse or retail space to meet business needs and negotiating the best commercial lease terms, is what we do best.
We come to work because we’re passionate about providing expert, innovative, independent advice to clients. We want to help businesses navigate the complexities of Commercial Real Estate.
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