Commercial Property Lease Renewal

As a law firm specialising in commercial real estate and real estate finance, Newmanor Law brings partner-led expertise to bear on difficult issues such as Distressed Assets. We also operate a one-team approach to provide joined-up solutions based on decades of experience.

Our clients are well-known names in the property market, who value our genuine fixed fees and our commitment to provide smooth transactions which are delivered on time.

Commercial Property Lease Renewal with Newmanor Law

Put very simply, a commercial lease is an agreement between a tenant and landlord, where the tenant pays rent to occupy a commercial property. The property serves as the tenant's business premises, allowing them to conduct specified business activities.

There is no minimum or maximum term for a commercial lease, however, they tend to be between 1 and 25 years. Most commercial leases are between 1 to 3 years, but those of 25 years (plus) remain common in industrial or warehousing properties.

Perhaps unsurprisingly, long-term leases are often favoured by commercial landlords as it provides security of occupancy, however, this generally results in higher rents for tenants as more stamp duty land tax will be due over the course of the lease.

The specific terms of the lease will be agreed at the outset, with the lease agreement including essential details such as the rental amount, the lease term end date, repair obligations, and alienation clauses.

This document will outline the rights and responsibilities of both the tenant and the commercial landlord. It is not, however, unusual for these pre-agreed terms to be subject to negotiation upon expiry of the lease, should either party wish to renew it.

Lease renewal upon expiration offers both tenants and landlords certain advantages in terms of stability, business continuity, and sustained growth. It is recommended that the lease renewal process is initiated at least 12 months prior to expiration (6months at a minimum), giving ample time to assess the desire to extend the contract and determine the length, or the terms, of the new agreement.

In order to initial a lease renewal, Landlords must serve a 'Section 25' notice, clearly stating any new proposed terms. If a landlord does not wish to renew the lease, they must provide reasons for their decision within the 'Section 25' notice. In some cases, tenants may oppose the new terms offered to them, and if an agreement cannot be reached, the court can intervene to establish fair terms.

On the other hand, tenants wishing to renew the lease must serve a 'Section 26' notice to the landlord. They are themselves legally entitled to propose new terms, and again, the court will intervene if an agreement cannot be reached on the revised terms.

When it comes to renewing a commercial lease, it's crucial to remember that most tenants in the UK are safeguarded by the Landlord and Tenant Act of 1954. This law protects against unannounced business tenant evictions.

When a lease expires, this statute gives business renters certain rights that must be followed under certain conditions. The 1954 Act's provisions prevent a lease from automatically ending even after its expiration date. As an alternative, the act's termination procedures must be followed in order to end the lease.

However, not all tenants will have automatic renewal rights. This is the case if you’ve waived your right to renew at the start of your lease, or you are;

a farm business tenant
a mining tenant
a service tenant employed by the landlord
on fixed-term tenancy of 6 months or less

How Can Newmanor Law Help When It's Time to Renew Your Commercial Lease

If you need help from a commercial lease solicitor, Newmanor can help in the following areas:

Drafting and serving Section 25 or 26 notices
Negotiation of contractual terms
Drafting or enacting Break Clauses
Granting and managing leases

Why Choose Newmanor for Commercial Lease Renewal

Real estate focus

Unlike full-service law firms, our service is focussed only on commercial real estate and real estate finance matters. Everything we do and every decision we make is designed to deliver best in class legal expertise for our clients.

Genuine fixed fees

Our service is based on fixed fees linked to a definitive scope of work. We do not provide estimates that lead to ambush billing on the eve of completion. We do not have time recording targets, just a focus on getting the deal done effectively and efficiently to meet our clients’ requirements.

Small firm, big team

We are a confident boutique firm with a team of 14 lawyers, including legal assistants, paralegals, associates, partners and consultants. The team we put at your disposal is larger than the real estate and finance teams of most competitor firms.

Push and tell

We proactively take ownership of your deals. We will push them forward and tell you what we have done and when, so you always know the progress of each deal. Our approach instils confidence that our team is doing everything possible to ensure transactions run smoothly.

One team, no silos

We work as a team to get things done, ensuring there are no gaps in the service delivered. There is no buck-passing between departments, we own deals and take personal responsibility to see them through to completion.

We listen

We understand good communication is key. We will always actively seek your feedback and we will action the points you identify. Our team will work closely with you in a collaborative way to ensure you come to regard Newmanor as an extension of your team.

Genuine client care

Our lawyers understand their careers are defined by the service they deliver to you and your business, not by their ability to bill the life out of you. This requires us to genuinely get to know you and your ambitions, to see how else we help you achieve your outcomes. Your success is our success.

Excellent service

We ensure every one of our team delivers the best possible client service and this is enshrined in our Service Pledge. This focus on client care saw us shortlisted for the Boutique Law Firm of the Year at the Modern Legal Awards and named as a Firm to Watch in the Legal 500 for Commercial Property and Real Estate Finance.

What our clients say...

Karen Mason, Edmund Barnes and Mandy Purewal at Newmanor Law supported our landlord client to manage and negotiate an office lease surrender. We found the Newmanor Law real estate team supportive and efficient in delivering our objectives in a timely manner. We would not hesitate to recommend Newmanor Law’s real estate services.

Andrew Murray

Avenfield Developments Ltd

ITC Properties needed to enter into a lease of an electricity substation chamber with London Power Networks as part of the development of 20 Greycoat Place, London, SW1. The Newmanor Team pushed the transaction forward to completion in a record time of 4 weeks to enable energisation. Karen, Edmund and Mandy do not put up with delays and they actively found solutions and helped to unblock this transaction to keep our development on track for practical completion and all for a genuine fixed fee which was honoured. I am happy to recommend Newmanor Law’s services.

Jeremy Titchen

Director, Rockhopper Real Estate Ltd

It has been great working with Newmanor Law and in particular Edmund on our real estate transactions – not only purchases but also work around historic title ownership queries regarding our portfolio of mixed-use properties. Wealden Properties has benefitted from expert advice, always being advised on what can be done rather than focusing on the issues, with all the options being explained in a clear and concise way. I can highly recommend Newmanor’s services.

Paul Baker

Director, Wealden Properties

Karen, Edmund and the team at Newmanor have again provided an efficient and professional service to close what was a challenging lease transaction. We could not recommend Newmanor more highly.

Josh Wilson

Asset Manager, Fletcher King

Frequently Asked Questions

When should you renew a commercial lease?

Negotiations around the renewal or extension of a commercial lease should ideally be commenced between 12-24 months before it is due to expire, but bear in mind, at a very minimum, at least 6 months will be needed for either a Section 25 or Section 26 to be triggered. You shouldn’t underestimate the amount of time it can take to negotiate and agree a new lease, so remain conscious of the end date, and work towards it. Allowing more time for finalising a renewal strategy will yield better outcomes for everyone involved.

The process for commercial lease renewal in the UK, includes:

Review the existing lease to understand expiry date, renewal provisions, and notice period.
Serve a Section 25, or Section 26, depending if you are the tenant or landlord, outlining any proposed amendments to the existing terms.
Await the response to the notice served, and engage in discussions if required.
Negotiate lease terms, seek legal advice, and prepare a lease renewal agreement.
Sign the new lease to formalise the extension and register with the Land Registry if needed.

Can a commercial lease automatically renew?

There are two types of commercial lease - a 'protected lease' and an ‘unprotected lease’.

With a protected lease, as per the Landlord and Tenant Act of 1954, the tenant as a legal right to renew the lease and stay on the business premises once the lease term ends. The lease will automatically renew unless the commercial landlord opposes renewal on limited legal grounds. This is referred to has having ‘security of tenure’.

With an unprotected lease, there is no automatic renewal when the lease term ends, and there is no legal right to renew. Instead, negotiation between the landlord and tenant will be necessary if the latter wishes to remain in the commercial premises.

Only certain legal circumstances allow a landlord to use a Section 25 Notice to thwart the automatic renewal of a protected lease. If the tenant serves a Section 26 Notice, the landlord will have two months to object and reject the tenant’s request if they disagree.

How do you extend the term of a commercial lease?

A "reversionary" lease can be signed by the landlord and tenant if they both want the lease to continue even though there is still time left on the current one. The end of the current lease immediately precedes the start of this new one.

While it may be colloquially referred to as an "extension," it's crucial to note that the existing lease cannot be modified to prolong or ‘extend’ the letting period.

The advantage of a reversionary lease is that it can be agreed upon well before the expiration of the current lease, and the terms can be identical (though negotiated changes can be included).

Can a landlord refuse to renew a commercial lease UK?

Under the 1954 Act, a landlord is not allowed to reject a new lease unless there exists a valid reason. The landlord has the ability to contest the tenant's Section 26 request within two months of receiving it, based on any of the seven grounds outlined below;

Breach of repairing covenant: Landlord must prove that the tenant's failure to maintain the premises justifies denying a new tenancy. The court will consider tenant's offer to include a repair covenant in the new lease.
Persistent delay in paying rent: Landlord must show that tenant consistently failed to pay rent on time to justify denying a new tenancy. Court's main concern is tenant's future prompt payment.
Breaches of other obligations: Landlord must demonstrate that breaches warrant denying a new tenancy. The court considers circumstances and tenant's past conduct, while landlord's waiver or acquiescence in a breach goes against refusing a new tenancy for that reason.
Availability of alternative accommodation: Landlord must show suitable alternative premises were offered to the tenant on reasonable lease terms.
Sub-tenant: Landlord must prove that the tenancy was formed through sub-letting and that the superior landlord can lease the entire premises for more than its parts. This is conditional upon the superior tenancy ending before the applicant's current tenancy termination date.
Landlord intends to demolish or reconstruct: Landlord must genuinely intend to demolish, reconstruct, or carry out substantial work on the premises and cannot reasonably do so without possession.
Landlord intends to occupy the premises: Landlord must genuinely intend to occupy the premises for their own business or residence. Ownership of the premises for at least five years is required prior to the current tenancy termination.

What is a section 25 notice?

A Section 25 Notice is a legal notice a landlord can serve to a tenant when they have a 'protected' commercial lease with the security of tenure, with a view to either opposing the renewal of a lease, or setting out revised terms for a new lease.

This notice will outline the terms of the renewal, and the reasons as to why the landlord wishes to make amendments to the existing terms or terminate tenancy altogether. It must be served during a legal timeframe (between 12 and 6 months before the lease expiration date - though negotiations surrounding any amendment to terms can commence earlier).

Often, if the landlord wants to end the tenancy, the main grounds for possession will be:

The Tenant has failed to pay rent
The Landlord wants to re-develop the property
The Landlord wants the property for their own occupation

There are strict legal rules around Section 25 forms, and it will need to be completed correctly in order for it to be lawful;

the date the tenancy will end is correctly on the form;
that you receive the notice within the legal timeframe, which is no more than 12 months and no less than 6 before the lease end date;
the property address on the form relates to your commercial premises; and
what actions the landlord wishes to take through the form, whether it is opposing the renewal, or suggesting new terms for renewal.

If the Section 25 notice refers to a change of lease terms, it is wise for the tenant in question to appoint legal counsel to review said changes and negotiate more preferable/fair terms as and where necessary. Equally, if the notice opposes renewal, it is possible to make a court application, however, this will need to be undertaken by an experienced commercial lease solicitor within the expiry date, otherwise, the tenant will lose the protection afforded by the Landlord and Tenant Act of 1954.

What is section 26 notice?

A Section 26 Notice is a notice that a tenant will use to lawfully renew or end a commercial tenancy.

A Section 26 Notice must be served to a landlord between 6 and 12 months before the tenancy ends, and should include the specific details of any proposed new terms for the new lease, such as the suggested revised lease term, rental amount; or whether you wish to have a break clause added to the lease agreement.

It is only applicable if the tenant holds a protected lease (as per the Landlord and Tenant Act of 1954), which affords the tenant the right to a new tenancy when the lease term ends. The Section 26 Notice is essentially is a notification to the landlord of the tenant's intentions and the reasons why (whether that is to vacate the premises, or continue occupation under similar or revised terms).

As a tenant, be mindful, however, that the landlord has the right to do the same thing with a Section 25 Notice. If the landlord raises a Section 25 notice first, a Section 26 notice will not be required (or visa versa). Negotiations can be conducted under either notice, the sections are purely indicative of the instigator in the process.

Landlords must respond to the receipt of a Section 26 Notice within two months. However, a landlord can refuse renewal of a commercial tenancy with a counter-notice on limited grounds, such as:

regular failure to pay rent;
they want to develop the property;
the premises are in disrepair;
breach the lease in other ways;
the landlord can provide alternative accommodation that is suitable for the business' needs;
the tenant has sublet without permission; and
the landlord wishes to occupy the premises.

What is the Landlord & Tenant Act 1954?

The Landlord and Tenant Act 1954 governs the rights and obligations of both landlords and tenants of commercial premises. Under this act, tenants with protected leases have the right to a new lease at the end of the contractual term, subject to reasonable adjustments based on current or projected economic, environmental or commercial market forces. This is known as security of tenure.

To end a or amend a tenancy either the tenant has to serve a Section 26 notice or the landlord issue a Section 25 notice.

The required notice needs to be submitted between six to twelve months prior to lease expiration, otherwise the current lease will remain in effect until the notice expires or a new lease is agreed. This is called "holding over".

Conversely, tenants with unprotected leases do not have automatic rights to renew their lease.

It's worth noting that currently, most new office leases are unprotected, and are granted outside the Landlord and Tenant Act 1954. This means tenants are not legally entitled to a new lease at the end of the term, giving landlords the flexibility to reclaim the premises for their own use, for another tenant, or for redevelopment without providing compensation.

The Landlord and Tenant Act 1954 establishes procedures and provisions for serving formal notices to exercise rights conferred by the Act. Seeking specialist advice from a commercial lease solicitor and a surveyor is crucial for understanding the impact of any notice and ensure proper protection under the Act.

What is forfeiture of a commercial lease?

Forfeiture is the legal process by which a landlord can terminate a commercial lease due to a breach of contractual terms, such as nonpayment of rent. It involves serving a notice clearly stating the breach and allowing the tenant a reasonable period to remedy it. If the breach is not resolved within the specified time frame, the landlord can proceed with forfeiture. However, landlords need to be cautious as premature forfeiture attempts can lead to wrongful claims by tenants. Proper service of the notice is important, and seeking legal advice from a commercial lease solicitor can ensure compliance. Forfeiture should be a last resort, with communication and cooperation between parties being preferable.

What is a break clause in a commercial tenancy agreement?

A break clause in tenancy agreements allows either the tenant or landlord to end the contract early without penalty if specific criteria are met. From the tenant's perspective, it offers the flexibility to leave the property before the agreed term. From the landlord's perspective, it grants the ability to remove a tenant for any reason.

Break clauses benefit commercial tenants as they provide long-term lease security while allowing for unexpected situations. Preconditions for activating a break clause typically include up-to-date rent, vacant premises, no subleases, no outstanding service charges, and current insurance payments. Payment conditions may require payment after the break date.

A break notice of at least six months is usually necessary, provided in a specified form and served according to the lease agreement. Failure to comply with break notice requirements may invalidate the attempt to end the lease. When break notice requirements are not detailed in the lease, general notice provisions should be followed.

Ready to do things differently?

If you are ready for a fresh approach to lease renewals, reach out to us.

+44 (0)20 7464 4080

enquiries@newmanor.com

32 Threadneedle Street
London EC2R 8AY