Dealing with end-of-lease issues

If you're a commercial tenant in London and you're nearing the end of your lease term, you need to be aware of your rights and responsibilities towards your landlord and the property.

If you're hoping to remain, do you have the right to renew? Or, if you're planning to leave, to what extent must you repair or return the property to its former condition?

These are the questions you need to ask yourself if you don't want to end up tackling legal issues or be suddenly without a property for your business to call home.

The best thing to do is to start acting well in advance of the end of your lease – at least six months, ideally. That way, you'll give yourself time to negotiate a new lease for your existing place or to find new premises for your business.

This guide explains how to navigate all the main issues you could face at the end of your lease.

Lease renewal and notice: do you have the right to renew your lease?

Protected leases

A "protected lease" is a lease that has the advantage of security of tenure under the Landlord and Tenant Act 1954 (the "Act"). The Act protects most business tenancies, but if you're not sure, your lease should tell you whether it is or isn't protected.

If the Act does protect your lease, your tenancy will automatically continue until you or your landlord decide to end the contract, or until a court decides to end it. To end the lease, a special notice procedure must be used.

Excluded or contracted-out leases

Some leases are excluded from protection by the Act and do not have security of tenure. This happens when:

• The lease says it is contracted out of the Act.

• The lease is a fixed term for less than six months – unless there is a renewal or extension term in the lease, or the tenant has been occupying the premises for more than 12 months.

• Occupation is permitted but no rent is paid – in this case, either the tenant or landlord can end the lease at any time.

• The occupier has a tenancy at will or a licence.

If your lease is coming to an end but you haven't discussed next steps with your landlord, you could be in a very vulnerable position.

Potentially, your landlord could evict you from the property at short notice or even with no notice at all. From the landlord's perspective, they don't know whether or not their rental income will continue.

What legal notices do you need to serve?

If you're a protected tenant and want to ask for a new lease, it's a good idea to give your landlord a letter setting this out. This is called "serving a section 26 notice", which is at least six months' and no more than 12 months' notice, and can't expire before the end of the lease.

A section 26 notice is a standard form letter and must include certain information. There are specialist legal advisers who can help you make sure yours is correct.

If you aren't a protected tenant, you may not have any rights to serve any notices on your landlord or to receive any notices from your landlord.

Do you have a right to "break" the lease early?

If you have a break clause and want to leave early, you may want to consider using that clause and serving a "break notice". You can only do this if there is a break clause in your commercial lease agreement.

Are you going to stay or leave?

If you're going to leave, you need to consider your responsibilities around assignment, dilapidations, alterations and vacant possession.

Assignment

If you want to move out of the property earlier than the end date in your lease agreement, you could try to assign the property to a new tenant. This is when a new tenant takes over your lease and your landlord becomes their landlord.

A landlord can refuse their consent to assign the lease, especially if there is a clause in the lease giving them the right to do so. However, they can't withhold consent unreasonably.

For example, if the new tenant was going to carry on a business that wasn't permitted under the use clause of the lease, the landlord might have a reasonable right to refuse permission.

Dilapidations

Dilapidations are your responsibilities under the lease to put the property back into good repair and condition before you leave. If you fail to do so, your landlord could make a claim against you for breach of contract.

Alterations

Likewise, if you or a previous tenant carried out alterations to the property, you may have to return it to its previous condition before you leave. Again, you could be in breach of contract if you don't undo your alterations.

Your lease agreement should be specific about your landlord's expectations around dilapidations and alterations.

Vacant possession

At the end of the lease, you'll have to hand back "vacant possession" (in other words, an empty property that the landlord can use or lease to someone else).

That means moving out of the property and taking all your possessions, items, fixtures and fittings with you. You'll also need to hand over codes to any alarm systems.

You should make sure to take final meter readings for utilities and let your utility companies know that you're leaving. You should also contact the local authority about ending your responsibility for business rates.

Most importantly, make sure that any subtenants (or any other occupiers) you might have also vacate the property.

If your landlord agrees that you can leave anything behind, or that they will take on your old subtenants, make sure to get that in writing.

If you don't give vacant possession, your landlord could argue that the lease is continuing, meaning you'll still be responsible for paying rent. Worse still, your landlord might be able to claim double rent under a law that dates back to 1730, which is definitely something to avoid.

Top tips for dealing with the end of a lease

• Give yourself plenty of time to negotiate a new lease agreement and try to avoid any misunderstandings between you and your landlord. Ideally, this should be at least six months before the lease expires.

• Best practice is to start thinking about it a year in advance. In some cases, you may not be able to discuss this upfront – for example, if you don't know exactly how things are going to pan out for your business.

• To protect your position and your business, consider taking professional advice from a lawyer and a surveyor a good length of time before the end of your lease.

Your cultural and community space toolkit

If you're reading this guide as part of the toolkit for opening, running and growing a cultural or community space, next look at step 10: annual and one-off premises costs.

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