Extending your lease: A guide for commercial tenants

As a commercial tenant, extending your lease is a crucial decision that can have a lasting impact on your business. If your workplace still suits your needs and aspirations, but your lease is coming to an end, it’s worth considering lease extension. In this guide, we’ll explain the process and offer some tips on how to negotiate the best outcome for your business. 

The Landlord and Tenant Act 1954

The Landlord and Tenant Act 1954 is an important piece of legislation that provides certain business tenants with a degree of security of tenure. The law gives business tenants who fall ‘inside the Act’ the right to request a new lease on similar terms to their existing lease when their contractual term comes to an end. Falling inside the Act means that your landlord has a longer and more complicated process to go through if they wish to recover possession of a lease. However, most new workplace leases now sit outside the Act. These tenants do not have the same level of security of tenure as those falling inside the Act. Landlords are not required to grant new leases, and tenants may have limited legal rights if their lease comes to an end.

To establish if your commercial tenancy falls under the Act, review your lease agreement for a “contracted out” or “contracted in” clause. If the lease has a “contracted out” clause, you likely don’t have the rights outlined above. If it doesn’t have such a clause, the tenancy is likely “contracted in,” meaning you can enjoy statutory rights and protections. If you’re uncertain about the status of your tenancy, it’s best to seek legal advice from a solicitor who specialises in commercial property law.

Negotiating New Terms

Once you’ve established whether your lease falls inside or outside the Act, it’s time to think about what you want from your new lease. There are many factors on which you can negotiate, including rent reduction, rent-free periods, smaller service charges, or contributions towards refurbishing your office. Engaging a surveyor to assess the current market value of the property can also help you negotiate a better deal. 

It’s important to note that landlords may not always be willing to offer these favorable terms. If your lease falls outside the Act, the landlord has more power to end the tenancy, which can make negotiations difficult. Even if your lease falls within the Act, the landlord may still have an upper hand, especially if there is high demand for the property. Also hiring a surveyor for an assessment can be costly and not always beneficial. It’s important to negotiate based on market conditions, be prepared to compromise, and have clear priorities.

Serving Notice on a Commercial Property

If you wish to extend your lease, you’ll need to serve the landlord a section 26 notice a full 12 months ahead of your lease expiry date. You may want to consider serving this notice when market conditions are most advantageous to your negotiations and engage the services of a commercial property solicitor to do so. 

What’s Next?

After following the steps above and reaching an agreement with your landlord, it’s time to make sure your space works best for your business. Are you supporting workplace wellbeing? Do you facilitate a friendly culture? Is your workspace inclusive, and is it still inspiring? At Interaction, we have over three decades of experience in creating best-in-class workspaces. Our article on redesigning your office is a great place to start, or get in touch to discuss your options in detail. We’d love to redesign and refurbish your workplace to breathe a new lease of life into it (excuse the pun).