Commercial lease extension: Part 2 - What is involved in the serving of a section 25 notice?

To Extend or not to Extend?

When coming towards the end of a fixed term, landlords will be weighing up their options moving forwards and whether they require possession of the property or if they are happy for the tenant to extend on suitable terms. A decision needs to be made and is one of the reasons that notice may not be served straight away. Instead, adequate time should be taken to make sure the correct decision is made. Notice cannot be amended or withdrawn without the other party’s consent once served, so if a mistake is made on the terms, this may be something that is difficult to recover from. For example, if at first, the landlord did not oppose a renewal, served notice and now realises that they need the property back, they cannot oppose the renewal without the tenant’s consent. If the tenant wants to remain in occupation, this consent would be difficult to obtain.

If the landlord does not object to a new tenancy, then the proposed terms can be put to the tenant. These will usually be substantially similar to the existing lease terms and will include the new term, the new market rent and can include other specific terms such as the addition of a break clause, rent reviews etc.

If, however, the landlord does not want to extend the tenancy, this needs to be made clear in the notice and reasons given. Acceptable reasons for a refusal to extend are detailed in section 30 of Landlord and Tenant Act 1954 and can include if the tenant has breached their repairing obligation, been late paying rent, if a suitable alternative property is made available, the landlord needs to redevelop the property or if the landlord wants to occupy the property themselves. It is worth considering that the tenant is due compensation if the tenancy is ended using one of the statutory grounds that is not their own fault, as we looked at in the first article in our series on commercial lease extensions.

 

Serving notice

Once a decision has been made, Landlords can then look at serving a notice pursuant to section 25 Landlord and Tenant Act 1954 on their tenant. This notice cannot be served any earlier than 12 months before the end of the fixed term and no later than 6 months prior to the proposed end date of the agreement, if the Landlord wishes the existing tenancy to come to an end as soon as possible, i.e. at the expiry of the existing fixed term. It is worth noting that notice does not need to be served to coincide with the end of the fixed term, and notice can be served later than this. Once either the landlord or the tenant has served notice, the other cannot then serve a notice and the matter will proceed based on the notice served. The notice always needs to be a minimum of 6 months.

 

The next steps 

If either you are a landlord and looking into the possibility of serving notice, early advice should be taken. Either to address the reasonableness and validity of opposition to the extension or, if an extension is agreed, to ensure that the proposed new terms are suitable. Equally, if you are a tenant who has been served notice and want advice on your rights to respond, we would be happy to help. At Boyes Turner, we can advise on all elements of the process. You can contact Richard Pulford on [email protected]. Alternatively, read further on the commercial property and property disputes services at Boyes Turner.