Negotiating a new lease deal can be a headache for both the landlord and the tenant, and this is often because things are left to the last minute.
As the deadline looms, the pressure to sort out any problems or issues heightens.
The simple option is to allow plenty of time to negotiate a new lease before the break clause approaches, and it is particularly important in these straitened times.
Landlords
They say the early bird catches the worm, and equally the landlord that negotiates a new lease early gets the best value out of their business properties.
The quicker one acts to sort out rent reviews, lease renewals, dilapidation surveys and credit control, the better it is for everyone, including tenants.
It makes sense to carry out rent reviews and lease renewals as far in advance as possible to get the best rent value. The closer one gets to the valuation date then the more likely it is that unfavourable comparable evidence will come to light, forcing the rental value down.
If the review date is set too late then the tenant may struggle to pay any arrears. So dealing with these matters without delay means you get the maximum rent, but the tenant’s ability to pay is not compromised.
Dilapidations should not be put off, and need to be attended to well in advance of the end of the lease.
Plenty of time should be allowed to have the property surveyed so that any dilapidation or repair notices can be served, and any necessary repair work can be completed.
It should also be noted that Section 17 Notices under the Landlord and Tenant (Covenants) Act 1995 must be served in good time to ensure the landlord maintains their ability to collect arrears from previous tenants or guarantors.
Tenants
For tenants it is vital that they stick to all the agreements laid out in their contract – particularly in times of recession – as this could be held against them when renegotiating the lease.
For landlords, having no tenant at all is better than having a problem tenant or one who misses payments.
If you have agreed a break clause and wish to utilise it then deadlines must be adhered to: if a deadline for service of a break notice is missed, even by a day, the break right is lost.
If a form of notice is specified, it must be strictly followed: a tenant may be forgiven minor defects, but this should not be taken as guaranteed.
If such a clause is not included in a tenancy for a fixed period - for example six months - the tenant is usually responsible for the rent for the whole period, even if they move out before that period ends.
How to negotiate your lease if…
Both parties want a new lease
In order to end the existing lease, the Landlord must serve a notice in a specified form on the Tenant bringing the lease to an end and indicating whether it is prepared to grant a new lease.
If the Tenant serves a notice on the Landlord that it does not wish to leave the property and subsequently issues proceedings in the County Court to request the Court to grant a new lease, then it is entitled to a new lease.
In most cases the Landlord and Tenant will then negotiate the grant of a new lease. If, however, the Landlord and Tenant cannot agree the new lease then the Court ultimately will hear the case and make a decision as to the terms of the new lease.
The Landlord does not wish to grant a new lease but the tenant wants one.
The only grounds on which the Landlord can refuse to grant a new lease are:
- Failure to pay rent or other breaches of covenant
- The provision of suitable alternative accommodation
- The Landlord wishes to demolish or reconstruct the property
- The Landlord wishes to occupy the property for his own business or residence
If the Landlord serves a notice saying that it does not wish to grant a new lease, the Court will decide whether the Landlord has sufficient grounds to refuse and, if not, it will set the terms of the new lease.
In some situations the Landlord will have to pay compensation to the Tenant for the disturbance. If the Landlord wishes to occupy the property it can only do so if it has owned the freehold for at least five years.
The Tenant wants a new lease but the Landlord has not attempted to end the existing lease
In some circumstances (e.g. where rents are falling), the Landlord may be quite happy to allow the existing tenancy to continue.
In that case, if the Tenant wishes to have a new tenancy so they can take advantage of the lower rents, they must serve a notice requesting a new tenancy.
If the Landlord does not serve a notice on the Tenant within the specified time, it is deemed not to be opposing the grant of a new lease.
The Tenant still has to apply to the Court for a new lease the terms of which will usually still have to be negotiated.
The Tenant does not want a new lease
A lease that is protected by the 1954 Act continues automatically until ended in accordance with the Act whether or not the Tenant wants it to.
To end the Lease, the Tenant must give at least three months notice to end the tenancy either on the last date of the lease or on a quarter day, whichever is the later.
To find out more about how we can help you, please contact Carvill & Johnson in Northfield, Birmingham.
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