Commercial leases: what landlords and tenants should consider

Abi Lutey, Partner and Head of Commercial Disputes at Coodes Solicitors, outlines some of the complexities and considerations for both landlords and tenants of commercial leases.

If you are a commercial property landlord or tenant, it is important to be aware of the legal issues that may crop up during the tenancy.

It is always advisable for both tenants and landlords to properly check their liabilities under a lease and note any key dates.

Tenants who stay after a lease ends

Unless contracted out of the Act, a tenant of a business lease will have the statutory protection granted by part II of the Landlord & Tenant Act 1954. If the tenant stays in the property after a contractual term, there is what is known as a ‘statutory continuation’ of the tenancy. This can only be ended in certain circumstances, which are dependent on the lease, but usually include service of a notice by either party, surrender, insolvency, death or forfeiture for a breach of covenant.

For those tenancies that are properly contracted out, and therefore do not have the protection of the Act, landlords need to be cautious after the tenancy comes to end. A tenant that remains in occupation after the expiry of the contracted-out tenancy may be treated as a trespasser, tenant at sufferance or even acquire fresh rights under the 1954 Act under a periodic tenancy. All of these have different implications for both landlord and tenant and legal advice should be sought.

Getting notices right

A tenant or landlord seeking to serve a notice during the lease term must take care that they comply with statutory requirements and those set out in the lease.

If either party wants to end a lease that has the protection of the Act, where the remaining contractual term is 12 months or less to run, they must serve notice. Failure to do so will result in a continuation tenancy.

Are you a commercial landlord?

A landlord can serve one of two types of notice to bring a tenancy to an end, either proposing a fresh tenancy or opposing one. Grounds for opposition where no fresh tenancy is being offered are limited, as I have explained in a previous article.

If either notice is served, the onus is on the tenant to take action before the deadline. Failure to do so may result in any renewal rights being lost or the tenant potentially being treated as a trespasser.

A landlord may also wish to serve a notice dealing with a breach of tenancy. Section 146 notices are complicated and need to set out the breach and remedy required. Such a notice could lead to forfeiture of the lease and a landlord must take care not to do anything that may constitute a waiver of such a right.

Section 146 notices do not deal with non-payment of rent. We often deal with claims for landlords who wish to recover rent by way of a monetary judgment or through the commercial rent arrears recovery procedure as opposed to exercising their right to forfeiture.

Should a tenant not be complying with their repairing obligations and the lease contains what is referred to as a Jervis v Harris clause, the landlord can enter the property, carry out the works and recover the sum during the lease term as a debt rather than wait until the end of a lease.

Are you a tenant under a commercial lease?

A tenant in receipt of a Section 25 notice should seek legal advice immediately to ensure its validity. It is important to get specialist advice on the next steps required and the strict timetable that must be adhered to.

Alternatively, absent of being served with a Section 25 Notice, a tenant can also serve a notice to request a fresh lease (a Section 26 notice). The same timescales apply in terms of service and the landlord has two months to reply. The landlord may oppose renewal under the same grounds used in a contested Section 25 Notice.

A tenant may also wish to take advantage of a break clause in their lease. This is a provision, set out in a lease, which enables the landlord or tenant to end the lease early. It is important to examine the break provision carefully as there are usually stringent requirements in relation to timing and what is required. It is usual that, in order to allow a break provision to succeed, a tenant must not be in breach of the lease.

Our advice would be to seek legal advice immediately upon receipt of or before serving a notice.

A tenant may also have concerns over their landlord’s obligations in a lease. For example, damages and compensation could be sought, if there is any interference with their use of the property or failure to carry out repairs.

These are only some of the common issues Coodes’ Commercial Disputes team deal with for both landlords and tenants and is not an exhaustive list.

For more information or advice on these issues, please contact Abi Lutey, Partner and Head of Commercial Disputes on 01872 246200 or abi.lutey@coodes.co.uk