Commercial leases: Rent Reviews & end of lesae provisions

Commercial tenants need to be aware that when a commercial lease comes to an end there is only an automatic right to stay in the property if your landlord has not served a Section 25 Notice on you and if your tenancy is inside the 1954 Act. If your lease is protected then when it ends you will have the right to stay in the property and hold over on the same terms until new terms are agreed or either party applies to Court and the Court imposes a new lease. A landlord may loose the right to call a rent review if he/she does not call it when and how the lease says, so, as a tenant it may be in your interests to keep quiet.

Leases & Rent Reviews: What type of lease Is yours?

Does it

1. require the landlord to serve formal notice to call the rent review
2. say if the landlord fails to call the rent review they loose the opportunity to review the rent until the next review
3. let the landlord review the rent when they remember to call the review but not backdate any increased rent
4. let the landlord review the rent when they remember to call the review AND backdate any increased rent
5. say if the rent is not agreed by a certain date that the landlord must appoint an arbitrator or independent expert to set the rent

What to do if you receive a Section 25 Notice to end your lease

Act fast:
if you receive a Section 25 Notice and you want to stay in the property, you must act ast and serve a Section 26 Notice requesting a new lease.

Beware:
if you fail to observe certain time limits you may loose the right to a new lease. Whilst for tenants protected by the 1954 Act the landlord’s grounds to seek possession are limited you may well finding yourself having to prove that the landlord’s grounds are unreasonable.

The type of lesae you have determines what happens at lease renewal.

What type of lease is ours? One a lease that:

1. automatically ends your occupational rights as tenant on the last day of the lease
2. do you, the tenant automatic security of tenure and not need to serve notice to request a new lease
3. requires you, the tenant to serve notice to request a new lease, are you aware of the timescales
4. gives you, the tenant security of tenure whether or not you serve notice to request a new lease
5. requires you, the tenant to serve notice of your proposed terms to be able to backdate any new rent to when the lease ended
6. says if terms are not agreed by a certain date that you must apply to the Court for the Court to set the new terms

Should negotiations between the parties not resolve matters then the lease should set out to whom a dispute must be referred. Often the lease will set down that the President of the RICS or RIBA or other professional body should nominate an Expert to adjudicate the matter. Depending on how a lease is drafted this Expert may be required either to take the role of an Arbitrator or an Independent Expert - below we set out the differences.

Role of an Arbitrator

• Must comply with formal statutory framework, laid down by Arbitration Act 1996, (in conjunction with the lease or contract).
• Oral hearings are more common, and can be expensive.
• The Arbitration Act 1996 allows parties the ability to control the process.
• The decision is based on evidence/submissions to the arbitrator.
• You cannot sue an Arbitrator for negligence.
• There is some scope for re-opening the decision, if incorrect.
• Arbitration is a private process, with a duty of confidentiality. In theory, you are not able to use another award as evidence, without the consent of parties. The Arbitrator will not attach much weight to such evidence.

Role of an Independant experts

• Informal process (as opposed to legislative), the procedure derived is solely from the terms of the lease or contract.
• Decisions are usually based documents submitted, so compared to Arbitration, may be cheaper.
• It is the lease or contract that gives parties the opportunity to control the process.
• An expert may use their own knowledge and expertise, to reach their decision.
• You can sue an expert for negligence (in theory).
• The decision is more likely to be final and binding, (even if incorrect).
• In theory, you cannot use a determination as evidence in another process without the consent of parties. In any case, little weight tends to be attached.