Can a Landlord refuse to renew a commercial lease?

This is a question that is commonly asked and, as with most legal questions, the answer will depend upon the decisions made by the parties prior to the lease being granted and, specifically, whether the lease has security of tenure under the Landlord and Tenant Act 1954 (Act).

Regardless though, the landlord can still “refuse” to renew a commercial lease, but where the tenancy created by the lease has security of tenure (for which see below) then the tenant can apply to the Court for a new lease where the landlord seeks to oppose its renewal. Where the lease does not have security of tenure, the landlord is not obliged to offer any renewal lease, and the tenant’s rights to occupy their premises will come to an end on the date specified in the lease. 

A landlord cannot automatically refuse to renew a protected lease simply because it has reached the end of its term. Where the lease benefits from security of tenure, the landlord must prove one of the statutory grounds of opposition before the tenancy can be terminated. However, if the lease has been validly contracted out of the Act, the tenant will usually have no automatic right to a new lease at the end of the contractual term.

Is the lease protected?

Unless the parties agree to dis-apply the Act (via a process known as “contracting out”), then it will apply and the lease will be protected. Protection is therefore the “default” (and, in some cases, the “inadvertent”) position, and where the lease has security of tenure then the tenant is generally entitled to remain in occupation after the contractual expiry of the lease and will have a right to request a new lease from the landlord. Generally speaking, where the Act applies, neither the landlord nor the tenant can terminate the tenancy created by the lease unless they follow the procedure set out within the Act.

Is the lease “contracted out”?

Not all leases benefit from security of tenure. Before a lease is granted, the parties can agree to “contract out” of the Act (meaning that they agree to dis-apply the rights that the Act grants to the tenant). A special procedure must be followed, which usually involves the service of a special form of “warning notice” on the tenant, who will then swear a declaration prior to the lease completing to say that they understand the rights that they are giving away.

You can tell if a lease is contracted out by checking to see if the Act has been “excluded” (usually about 3/4 of the way through the lease document). If it has, this part of the lease will refer to dates of notices being served, and declarations being executed. If the lease does not contain those provisions, then it is likely that the lease is not contracted out and the Act will apply. That said, it is possible that the Act can apply “inadvertently” where the strict contracting-out procedure is not followed. The parties must ensure that the strict timings are adhered to. If not, the contracting-out procedure will fail and the Act will apply.

Can the Landlord refuse to renew?

Yes, but it should follow from the above that different rules (and outcomes) will apply depending on whether the Act applies or not.

Where the lease is properly “contracted out”, then the Act will not apply and the lease will end on the termination date specified in it. Put simply, the tenant will lose its right to occupy the premises at the end of the lease, and the landlord will be under no obligation to offer any lease renewal.

Where the lease is not contracted out, the tenancy will continue after the expiration date of the lease and it will only come to an end after either of the parties elects to terminate it. Put simply, the tenant will be allowed to remain in occupation after the lease has expired and, subject to a few exceptions, will be able to request a new lease from the landlord. At that point, the landlord can only refuse to grant a renewal by relying upon one or more of the “statutory grounds” set out within the Act. These include (but are not limited to):-

1. The premises being in a state disrepair (as a result of the tenant failing to comply with their repairing obligations within the lease);
2. That there has been a provable “persistent delay” in the tenant paying rent to the landlord;
3. That the landlord is willing to offer suitable alternative accommodation to the tenant;
4. That the landlord intends to redevelop or demolish the premises, and it cannot do so whilst the tenant remains in occupation; and/or
5. That the landlord intends to occupy the premises themselves.

It is also possible for the landlord to “take the initiative” and seek to terminate the tenancy at the end of the contractual term of the lease (i.e. without the tenant requesting a new one). Either way, the grounds of opposition remain the same and, in the absence of an agreement between the parties, the Court can be asked to consider:-

1. Whether, and to what extent, it considers that the landlord has “proven” its grounds of opposition (to the civil standard of “on the balance of probabilities”); and
2. If it has, it will make an Order that the tenancy be terminated (i.e. there will be no renewal of the lease); or
3. If it has not, it will make an Order that a new lease be granted (on terms to be agreed between the parties or, in lieu of that, at a “second” Hearing where the Court will decide the terms of the new lease.

Is the tenant entitled to compensation if the lease is not renewed?

Where the lease is properly “contracted out”, then the tenant will have no right to a renewal and no right to compensation at the end of the contractual term of the lease. Where the Act applies to the tenancy, the tenant may be entitled to compensation, but only where the landlord has relied upon so-called “no-fault” grounds, such as (but not limited to) the redevelopment ground or the ground where the landlord intends to occupy the premises themselves. The amount of compensation is generally linked to the rateable value of the premises, and the length of time that the tenant has been in occupation.

A landlord cannot automatically refuse to renew a protected commercial lease simply because it has reached the end of its term. Where the lease benefits from security of tenure under the Act, the landlord must prove one of the statutory grounds of opposition. However, if the lease has been validly contracted out of the Act, the tenant will usually have no automatic right to a new lease at the end of the contractual term.

How can we help?

Get in touch with our specialist property litigation solicitors. Contact our team by telephone on 0116 247 2000, complete our contact form, or send us an email via info@smithpartnership.co.uk. 

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