Let’s talk before leases end

Francis Tomlinson
Francis Tomlinson

TALKING about things is usually the best policy for both landlords and tenants when the end of a lease is approaching on commercial property.

That’s the opinion of Francis Tomlinson, director of Dacorum based agent Aitchison Raffety.

Mr Tomlinson, pictured, said: “It is usually advisable to enter into negotiations with the tenant, and endeavour to secure a longer term lease, possibly at a reduced rent, or with other incentives being given.

“In the current market, the last thing most landlords want is an empty property which may lead to a potentially lengthy void period together with management costs and the cost of paying rates on an empty building.”

Mr Tomlinson said his advice would be to assess the position as early as possible before a lease comes to an end.

He added: “Any decision will be influenced by whether or not the tenant is protected by security of tenure.”

Security of tenure rights are available to tenants automatically under the Landlord and Tenant Act 1954, although such rights can be lost. This means that, with the exception of certain specific circumstances, a tenant can have an automatic right to a new lease at the end of the current one, generally on similar terms to the existing lease and at a current market rent.

The lease will not necessarily expire at the end of the contractual term but, rather, may be brought to an end by the service of statutory notices either by the landlord or tenant. Such a notice will advise as to whether or not a new lease is offered, or sought.

In the absence of such notices, and assuming the tenant remains in occupation, the lease will continue on the existing terms and at the existing rent.

Mr Tomlinson added: “However, some leases specifically exclude the tenant’s security of tenure, and this is quite common in short leases. Such leases expire at the end of the term with no tenant’s right to renew whatsoever.

“In the current market, rents for some properties have dropped substantially and some very good deals can be negotiated on vacant properties.

“Assuming that tenants wish to stay, it is generally recommended that they open a dialogue with the landlord at an early date, whilst at the same time considering the alternatives.”

He added that prudent landlords will be aware of market conditions and the likely outcome if a tenant should leave, and should be prepared to enter into a dialogue to reduce the rent if appropriate.

Mr Tomlinson says from a landlord’s point of view appropriate statutory notices should be served as soon as possible. From a tenant’s viewpoint they should take action in plenty of time, as otherwise tenants could find themselves in a weak negotiating position having no rights of renewal.

Mr Tomlinson says landlords who are considering quietly waiting for a lease to expire and allowing it to continue as a Statutory Tenancy risk one of two outcomes.

Firstly tenants will be able to leave at any time by serving three months notice after the expiry of the lease term.

On the other hand, if the lease is excluded from the security of tenure provisions, then allowing the lease to run on past the contractual expiry date, and continuing to collect rent, can create a situation where security of tenure is obtained by the tenant, which in turn makes vacant possession far more difficult to obtain if required.