Legal guidance for commercial landlords

This article provides legal guidance for landlords if a commercial lease expires and tenants refuse to sign a new lease during the coronavirus crisis.

If the commercial tenant’s lease expires but the tenant remains in occupation, this could create complex legal issues for landlords. It is important that landlords take the correct steps at the correct time to ensure that they are protected.

Commercial leases fall into two categories, protected and excluded. The steps will differ depending on what type of lease is in question.

Guidance for commercial landlords – protected leases

A protected lease is one which falls within the security of tenure provisions of the Landlord and Tenant Act 1954. This means that when the existing lease term ends, the lease will normally continue beyond that date. This is unless the landlord has served notice to bring it to an end, or the tenant vacated before the expiry date.

If the tenant is unsure whether to enter into a new lease and the landlord has not served notice bringing the lease to an end, the existing lease will remain in place. This means the landlord can continue to collect the rent. Whilst a new lease should be put into place as soon as possible, the existing lease will continue indefinitely until a new lease is agreed.

Guidance for commercial landlords – excluded leases

An excluded lease is one which has expressly removed the tenant’s right to a new lease. The tenant is therefore not entitled to a new lease when the existing lease expires. However, the landlord can grant them one if they wish to.

If an excluded lease expires, it will not continue. Instead, a new tenancy would arise if the tenant remains in occupation of the property. This can make regaining possession of the property more of a risk and much less straightforward.

The nature of the new tenancy depends on the specific facts of the case. As a worst-case scenario, the landlord may find that a protected lease arises in place of the excluded lease. This gives the tenant a legal right to a new lease and would make it incredibly difficult, and in some cases impossible, to remove the tenant.

What should commercial landlords do…

If an excluded lease is expiring?

We advise that landlords check their leases and make a note of the expiry date now. Set a reminder to contact the tenant approximately six to eight months before the expiry date, to ascertain what their plans are.

For tenants who wish to leave at the end of the lease, the landlord should check that the tenant has vacated. The keys should then be returned to the landlord.

If the tenant is unsure whether they require a new lease and the landlord is happy to give them more time to consider this, then a tenancy at will (where rent can still be collected but either party can terminate it without notice) or a new short term lease should be put in place before the existing lease expires.

If the tenant decides that they wish to remain in the property long term?

A new lease must be entered into before the existing lease expires. This should take effect on the expiry of the existing lease.

If the landlord does not wish to grant the tenant a new lease?

The landlord should communicate this to the tenant in good time before the expiry of the lease. The landlord should ensure that the tenant vacates on time and that the keys are returned on the expiry date.

If the existing lease expires before a tenancy at will or a new lease is put into place?

It is prudent for the landlord to refuse rent from the tenant and rent should not be demanded until a new tenancy is in place. Although this causes a loss of income in the short term, accepting rent at this time may create a new protected tenancy. It is therefore important that the correct documents are in place in anticipation of the lease coming to an end. This will avoid any interruptions to the payment of the rent.

If the tenant does not indicate their intention or does not engage in correspondence, the landlord should seek legal advice. We advise this is done in good time before the exiting lease expires.

When an excluded lease has expired without a new tenancy being entered into, the landlord should seek legal advice at the earliest opportunity.

For further guidance on the issues covered in this article, or any other commercial property issues, please get in touch with our Commercial Property team.