What is a Business lease?
The Landlord and Tenant Act 1954 (LTA 1954) provides the statutory right for a tenant of a business lease to a lease renewal at the end of the contractual term, if it satisfies certain criteria set out in section 23 of the LTA 1954.
The qualifying criteria can be broken down as follows:
- Is there a tenancy?
- Does the tenancy relate to premises?
- Are the premises occupied for the purpose of a business?
- Is the business carried on by the tenant?
- Does the tenancy fall within any of the specific exclusions?
Some leases may be contracted out of the LTA 1954. The parties may have agreed that the lease cannot be renewed under the LTA 1954 before entering into the lease by undertaking specific steps as required by the LTA 1954. You should check your lease carefully for any clauses relating to this and check that no agreement has been reached to this effect.
If a tenancy is protected by LTA 1954 it will not end automatically at the end of the term. It can only be terminated by the methods as set out in the LTA 1954. At the end of the lease term the question arises; how is the lease renewed?
How do you renew a business lease?
If the tenant meets the criteria set out in section 23 of the LTA 1954, the tenant can request a new business tenancy by serving a valid 26 notice on the landlord. The tenant must think very carefully before taking the decision to serve the notice, as it will start the process of a lease renewal, leading to discussions relating to rent increase and a possibility that the landlord may have legitimate grounds – as detailed in the LTA 1954 – to refuse such an application. It also has the effect of bringing the current lease to an end. The tenant must validly serve the landlord with a section 26 notice in the prescribed form not more than 12 months nor less than 6 months before the proposed commencement date specified in the request. The commencement date cannot be earlier than the contractual expiry date of the current lease.
If the landlord wishes to propose a grant of a new tenancy or propose different terms they must respond to the section 26 notice by serving a counter notice within 2 months after the section 26 notice is served. The counter notice must specify the grounds in section 30 of the LTA 1954 on which the landlord is opposing the application for renewal of the lease. If the landlord does not serve a counter notice within this time frame, they cannot oppose the tenant’s renewal application and a new lease must be granted.
Alternatively, the landlord can seek to end a business tenancy and propose a new tenancy by serving a valid section 25 notice on the tenant pursuant to the LTA 1954. The section 25 notice must be served not more than 12 months nor less than 6 months before the termination date specified in the notice. The termination date specified in the notice cannot be before the contractual expiry date of the current lease.
If the parties are unable to agree on the terms of a new lease, either party can apply to Court for an order for the grant of a new tenancy. In the absence of agreement, the Court will order a lease taking into account and having regard to the existing terms.
Where renewal is initiated by the landlord, either party can apply to the Court as soon as the section 25 notice has been served. When renewal is initiated by the tenant, neither party can apply to the Court until the landlord has served a counter notice within 2 months after the date the tenant has made a section 26 request.
It is important to remember that any Court application must be made within the prescribed time limits, or the tenant will lose their right to a new lease. The Court application must be made by the day specified as the termination date in the section 25 notice or the date before the commencement date specified in the tenant’s section 26 request. If no application is made by the end of the statutory period the tenant will lose their right to a new lease and will have no right to remain in occupation of the premises. The parties can agree in writing to extend the date for making an application to the Court provided that they do so before the deadline expires.
Renewing business leases can be complex. As a dentist, you need your premises to carry out your work, and need the security of knowing your lease is in place in the long term, and based on terms that are acceptable to you. If you are considering renewing your business tenancy or if you are seeking to end your business tenancy, we recommend you seek legal guidance on your entitlement to do so, and the content of your notice. As a tenant, the consequence of missing the statutory deadline should you wish to issue Court proceedings is serious as you will lose your right to renew your tenancy.