Commercial Landlords - what to do if your lease is set to expire

When a commercial tenant’s lease expires complex legal issues can be created for the Landlord if the Tenant remains in occupation. To avoid these issues the Landlord should take the correct steps leading up to the expiry date to protect itself.

Broadly speaking commercial leases fall into two categories, protected and excluded. The steps the landlord will need to take differ depending on the type of lease they have.

Protected leases

This type of lease has the protection of the security of tenure provisions set out in the Landlord and Tenant Act 1954. What this means is that even if there is a set expiry date in the lease, the lease will automatically 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 has not vacated before the expiry date or the landlord has not served the notice and at the right time, the existing lease will remain in place. This period is known as the tenant ‘holding over’. This means the landlord can continue to collect the rent. However a new lease should be entered into as soon as possible to ensure the terms are up to date and especially so the rent provision reflect the market standard at the time.

Excluded leases

This type of lease is one which has expressly removed the tenant’s right to a new lease usually with a provision in the lease illustrating this, and is known as ‘contracting out’.

In these circumstances the lease will end on the expiry date set and will not continue. If the tenant remains after the expiry date then a new tenancy has been created. This will make regaining possession of the property more complicated.

Depending on the facts of each case 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 to remove the tenant.

Steps to take

Firstly the landlord should check their lease and make a note of the expiry date. Then about eight months before the expiry date the landlord should contact the tenant to establish their plans.

If the tenant wishes to leave at the end of the lease, the landlord should check that the tenant has vacated by the expiry date. The keys should 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 or a new short term excluded 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.

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 team on 01233 624545 or email jwm@kingsfords.net.