My company is thinking of taking a lease of business premises. At the end of the lease term, will we be able to stay at the premises and be given a new lease?
Phil Dixon, Head of Commercial Real Estate at Clarke & Son replies:
As to whether you will have a right to stay in the premises at the end of the lease will depend on what is negotiated with the landlord prior to the new lease being taken.
A tenant of a business lease has a statutory right to a lease renewal at the end of the contractual term if it satisfies certain statutory criteria set out in the Landlord & Tenant Act 1954 (LTA 1954). However, a landlord is entitled to exclude the provisions of the LTA 1954 by following a statutory procedure before the tenant becomes committed to take a new lease. This is usually called “contracting out”.
If the landlord is looking to contract out your lease then it will mean that on the expiry, you would not have any statutory right to be granted a new lease by the landlord. He may still decide to give you a new lease, particularly if you have traded well throughout the term but equally can ask you to leave the premises.
If, however, the lease is to be protected by the LTA 1954 then at the end of the term you would have the right to be granted a new lease by the landlord upon open market terms. It is possible for a landlord to oppose a tenant’s statutory right to a lease renewal on certain grounds set out in the LTA 1954, such as if the landlord wishes to redevelop the premises. It is, however, rare for a landlord to oppose renewal and if the landlord did do so successfully, you would usually be entitled to compensation based on the rateable value of the premises.
You do need to consider when you are entering into a new lease, what the impact of the lease being excluded from the LTA 1954 might have on your business. If you have built up reasonable goodwill and may find it difficult to transfer your business to another premises/area at the end of the term, the fact that the landlord does not have to offer you a new lease if it is contracted out may have damaging consequences to your business.
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