BUSINESS LEASE RENEWALS. DO YOU NEED TO RENEGOTIATE?

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Keeping a business afloat is an ongoing challenge. But for unwary business tenants, all your hard work could be put at risk if you don’t understand your rights with regard to your lease. Indeed, it is not uncommon for lease issues to result in successful businesses having to relocate or even close.

For example, earlier this year, popular card and gift shop Clintons announced its decision to leave Hull’s St Stephen’s Shopping Centre as “the terms of the lease renewal for our St Stephen’s store was cost prohibitive.” And, according to reports, other stores in the centre have left for similar reasons over the last few months.

Worse, the decision could be taken out of your hands if you do not have a statutory right to renew. This can be particularly frustrating if you have spent time developing a site; investing a substantial amount of time, money and effort in the process.

The truth is, commercial leases come in all shapes and sizes. So it’s vital that you understand the terms under which you occupy your commercial property.

What to consider when your lease is up for renewal.

1.    What kind of lease do you have?

The first thing you need to know when facing a lease renewal is which type of lease you have. Leases come with or without ‘security of tenure’. If you have security of tenure, you have the right to renew your contract at the end of the term automatically. The only exceptions to this are listed in the Landlord and Tenant Act (e.g. non-payment of rent, breach of lease, or where the landlord wants to occupy or develop the property).

While the law gives businesses the automatic right to renew, it is not uncommon for landlords to exclude this right at the outset of the lease. However, if this right has been omitted, you will have signed a statutory declaration to confirm that you were aware of this clause. If you are in any doubt, it is worth seeking professional legal advice to check this for you.

2.    Do you need to renegotiate terms?

If you don’t have security of tenure, your lease will end on the date specified in the lease. However, if neither of you initiates the renewal process, the contract will continue under the same terms.

This can be a tempting option as it stops you having to worry about the renewal process. However, in some instances, it can make good business sense to renew the lease. If the landlord is not pushing you for a rent increase, ask yourself why. It is always worth speaking to your solicitor to ensure the right strategy for your business.

3.    How much will it cost you to renew your lease?

If you decide that you want a new lease from your landlord, you will need to agree on terms. Contacting a property agent or surveyor will provide you with an understanding of what is currently available in the marketplace in your area. This will give you a better feel for whether the renewal terms quoted are competitive, and arm you with the information you need in any negotiations.

If you have a right to renewal, the landlord can’t ask for an over the top rent. It must be based on market evidence. If you are concerned about the terms offered your solicitor will be able to advise you. If you cannot agree to the terms, you may apply to the court to decide them.

Your landlord may also be entitled to increase the rent during the lease period (rent review dates). If you know that a rent review date is imminent, it is worth speaking to your solicitor for advice.

4.    What should you do if you don’t want to renew your lease?

As a lease comes to an end, you might decide that you don’t want to renew. Many people use the end of a contract as an opportunity to evaluate their business and determine if a property is suitable for future plans and growth.

If you do not want to continue in your existing premises, it is vital to ensure that you vacate and return the keys to your landlord on or before the stated expiry date. Any delay could mean that the lease does not expire until a few months later, with you required to pay rent up to this date.

If you have a “break right” in your contract, you might be able to leave the property during the lease period (as long as you comply with the agreed conditions). You can also use a break right to renegotiate or vary your lease terms.

If cost is the only thing making you walk-away from a property, you should always try to renegotiable more favourable terms before doing so. Here again, a solicitor will be able to help you. 

Ultimately, renewing and renegotiating a lease can be a worthwhile but time-consuming exercise. As such, we would recommend that you being the process 12-15 months before the date of expiry.

To find out more please contact Raymond Green. Raymond advises on all aspects of property and business law.

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