Landlords and the expiry of a commercial lease

The end date of a commercial lease always requires advance preparation from a landlord. Whether the goal is to remove the tenant or to continue the relationship, either in its current or a new format, it’s important to ensure decisions are made well in advance of the date itself. Early consideration of whether or not the relationship is worth preserving, and what rights the tenant has is essential.

Does the tenant have ‘security of tenure’?

For any landlord, this is the first key question to resolve. It should be obvious from the lease whether the tenant has security of tenure and this is something that can be quickly assessed by a legal advisor. Essentially, security of tenure is a statutory right to renew a lease, which applies to a lease concerning premises occupied by a tenant for business use.

  • Security of tenure. If there is security of tenure then the tenant has a right to a renewed lease and there are only certain grounds on which the landlord can refuse to renew the lease. These grounds may include persistent late rent payments or a situation where the landlord wants to demolish the premises. Without the existence of these grounds, landlord and tenant must agree a new lease, usually at a current market rate. 

  • No security of tenure. Without security of tenure the tenant has no legal right to renewal of the current lease. So, the landlord and tenant can both agree to a new lease or the tenant must leave.

Keeping valuable tenants

In a situation where the relationship between landlord and tenant has been positive, the landlord may wish to continue it. Often, it’s tempting simply to let a tenancy roll on as it is, undisturbed – and sometimes this is the best way to keep costs and effort to a minimum. An issue arises where the landlord is looking to change the existing terms, for example to increase the rent. Where that is the case this should be discussed initially between landlord and tenant – the ideal situation is to reach mutual agreement on proposed new terms. Where agreement isn’t reached, notice proposing the new terms will be necessary (often at least six months).

Removing current tenants

Even in a situation where the tenant does not have security of tenure, complications can arise when it comes to removing tenants. For example, a further tenancy can be created where an existing lease has expired but the tenant has remained and the landlord continues to receive rent. Commercial landlords must keep track of lease lengths and review the situation at least six months before expiry to make a decision about whether the relationship should continue. In the case of tenants with security of tenure, plenty of notice must be provided (often at least six months) and that notice should specify the ground that is being used to justify removing the secure tenant.

For any commercial landlord, whether the goal is to continue or end an existing lease, it’s crucial to ensure the legal position is understood and that there is plenty of time to take the necessary action.