Tenants: What to do when your business lease is coming to an end
Most tenants have the right to renew their commercial lease when it ends, but that decision is only one of many that should be considered. Here are six things to consider if your lease is due to expire.
Plan ahead
There is a lot to remember when a lease is coming to an end, so it is useful to plan ahead to ensure that everything is in order and both you and the landlord understand the situation. It is generally recommended to start making plans at least a year prior to the expiry date, giving you plenty of time to give notice to renew your lease (generally between six and 12 months’ notice) or give notice that you will vacate the property (at least three months’ notice).
Decide whether you want to renew your lease
The Landlord and Tenant Act 1954 provides ‘security of tenure’ to long-term commercial tenants which grants them the right to remain on the premises and request a new lease —known as a protected lease. However, some commercial tenants, such as those with fixed-term leases of six months’ or less are not protected under the Act, and the provisions can also be excluded through contract.
Therefore, if you plan to renew the lease it is critical to know your legal position under the lease you originally signed. And if your renewal is not a protected right under the Act then you should start negotiations about the possibility of a new lease with the landlord as early as possible to secure your position.
Prepare to negotiate the rent for a new lease
Rents in certain areas rise and fall for a variety of reasons and if market rents in your area have fallen since your original ease was agreed you may be able to negotiate a rent decrease. On the reverse, you should also be prepared that if market rents have risen in your area then you may be expected to pay more upon renewal.
Always do your own research into rents in the area when it is coming up to the expiry of your lease to be prepared for any negotiations.
Consider your repair obligations
In most commercial leases a tenant will be required to return the property to the landlord at the end of a lease in a similarly ‘good condition’ to when they took over the premises. To make sure a property is returned in the condition expected, a landlord may serve you a Schedule of Dilapidations, which outlines the work required to make any repairs and estimated costs.
At this point it is useful to rely on a Schedule of Condition (SoC) if one was produced at the commencement of the lease. This will clearly demonstrate the state to which the property should be returned and provide a basis for any negotiations as to the remedial works required.
Save money by completing any remedial works yourself
If you leave a premises after the expiry of a lease and have not returned it to its original state then you will be liable for the cost of dilapidations. While the landlord is required to make sure any expenses charged are reasonable, they are likely to still be significantly more than you would be able to achieve if you organised a reliable contractor to complete the works yourself.
Tenants save an average of 40% by engaging their own contractors and even just tendering the works can help bring down any proposed dilapidation costs.
Don’t forget your deposit!
If you have paid your rent on time, fulfilled all your maintenance and repair obligations under the lease, and do not owe the landlord any money then you are legally entitled to ask for your deposit to be returned.