Dealing with an Upcoming Lease Expiry where the lease is protected by Part II of the Landlord and Tenant Act 1954 - A Guide for Landlords

If neither you nor the tenant takes any action and the tenant remains in occupation for business purposes, the tenancy will not come to an end on the expiry date stated in the lease. Instead, it will continue at the same rent and on the same terms as before, except for the terms dealing with termination. In a rising rental market, this continuation is unlikely to be in your interest because the current rent may well be below the market rent.

1. Your tenant could serve a request for a new tenancy under section 26 of the 1954 Act, to terminate the existing tenancy and ask for a new one. This request must be given in the prescribed form and must be served not less than 6 months nor more than 12 months before the date on which the new tenancy is to start. The start date specified in the request must not terminate the existing tenancy before the expiry date stated in the lease, but the request can terminate the tenancy on any date after that provided that the required period of notice is given.
2. Your tenant could serve notice under section 27 of the 1954 Act. The notice can either bring the tenancy to an end on the lease expiry date or on any other date after that, provided that not less than 3 months’ notice is given.
3. Alternatively, section 27 also allows your tenant merely to vacate the premises without giving you any notice whatsoever, provided that vacation is effected by the lease expiry date.

If your tenant has not served a section 26 request or notice under section 27 of the 1954 Act, you may serve notice under section 25 of the 1954 Act to terminate the existing tenancy. This notice must be given in the prescribed form and must be served not less than 6 months nor more than 12 months before the termination date specified in the notice. The termination date specified in the notice must not be earlier than the expiry date stated in the lease, but it can be on any date after that provided that the required period of notice is given.

The notice must state whether or not you oppose any application by the tenant for a new tenancy. If you wish to oppose such an application, the notice must specify the ground(s) on which you intend to rely. (See Grounds of Opposition)

If you wish the tenant to leave the premises, you have two available courses of action under the 1954 Act – see below. Alternatively, you may wish to consider whether you can negotiate to bring the tenancy to an early end by surrender. Surrender requires an agreement between you and the tenant to bring the tenancy to an end. Another option is to check whether the tenant is in breach of any of its lease covenants, which may allow you to forfeit its lease. (See Forfeiture – A Guide for Commercial Landlords.)

The options under the 1954 Act procedure are:

1. Serve notice under section 25 of the 1954 Act and state that you will oppose any application by the tenant for a new tenancy. The notice must specify the ground(s) on which you intend to rely. (See Grounds of Opposition.)
2. If the tenant has served a section 26 request, you must serve a counter-notice within 2 months of the request to notify the tenant of your intention to oppose any application for a new tenancy. The counter-notice must specify the ground(s) on which you intend to rely. (See Grounds of Opposition)

There is no need for you to serve a counter-notice if you are willing to grant a new lease to the tenant, although it maybe helpful to contact the tenant to start negotiations for the new lease.

However, if you are opposed to the grant of a new tenancy, you must serve counter-notice within 2 months of the request to notify the tenant of your intention to oppose any application for a new tenancy. The counter-notice must specify the ground(s) on which you intend to rely. (See Grounds of Opposition)

In a rising market, the current rent may well be below the open market rent. The rent payable for the new tenancy should be determined by reference to the open market rate. In addition, you will be entitled to apply for an interim rent to be determined, which is the rent payable between the termination date of the existing tenancy and the start of the new tenancy. (See Part II of the Landlord and Tenant Act 1954: Frequently Asked Questions for further information concerning interim rent.) Therefore, in a rising market, it is often sensible to serve notice on your tenant under section 25 of the 1954 Act to bring the existing tenancy to an end as early as possible.

In a falling market where you do not wish to oppose the grant of a new lease to the tenant, there may be no advantage to you in serving notice to determine the existing tenancy - particularly since interim rent will be payable from the earliest termination/start date that could have been specified in the section 25 notice/section 26 request respectively, irrespective of the actual date specified. In any event, it is likely that a tenant in a falling market will be keen to serve notice under section 26 of the 1954 Act so that it can obtain a lower rent as soon as possible. However, serving notice to bring the existing tenancy to an end will at least start the lease renewal process if you are keen to achieve some certainty.

If you intend to oppose the grant of a new tenancy to the tenant, it is vital that you give very early consideration to your likely ground(s) of opposition and the evidence that you will need to support your case. Ideally, you should not serve notice under section 25 of the 1954 Act opposing the grant of a new tenancy until you have obtained detailed advice on your position and the evidence that will be required by the Court.