Dealing With An Upcoming Lease Expiry - A Guide For Tenants

DEALING WITH AN UPCOMING LEASE EXPIRY - A GUIDE FOR TENANTS

If you are a tenant whose Lease is protected by Part II of the Landlord and Tenant Act 1954 (see When does the Act apply to a tenancy?), you will need to review your position as the contractual expiry date of your lease approaches. (The effect of any break options contained in your lease is not considered here.)

What will happen if you do nothing?
If neither you nor the landlord takes any action and the 1954 Act still applies to the tenancy (see LTA 1954 FAQ's When does the Act apply to a tenancy), 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 falling rental market, this continuation is unlikely to be in your interest because the current rent may well be above the market rent.

What can the landlord do if you do nothing?
Your landlord could serve notice under section 25 of the 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 that 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 the landlord will oppose any application by you for a new tenancy. If the landlord opposes such an application, the notice must specify the ground(s) on which the landlord is relying. (See Grounds of Opposition).

How can you start the lease renewal process?
If your lease was granted for more than one year and the landlord has not served a section 25 notice, you may serve notice under section 26 of the Act to request a new tenancy from your landlord. 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.

Once you have made this request, the landlord will not be entitled to serve a section 25 notice. Instead, the landlord must notify you within 2 months of your request if it intends to oppose your application for a new tenancy and must specify the ground(s) on which it will rely. (See Grounds of Opposition).

What do you do if you want to leave the premises?
If you wish to leave the premises, you can serve notice under section 27 of the 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. Alternatively, section 27 also allows you merely to vacate the premises without giving your landlord any notice whatsoever, provided that vacation is effected by the lease expiry date. However, the latter approach is not generally recommended and it is usually safer to serve notice under section 27 to inform your landlord of your intention to vacate the premises.

In certain circumstances, there is also the option of negotiating with your landlord to bring the tenancy to an early end by surrender. Surrender requires an agreement between you and the landlord to bring the tenancy to an end.

What should you do if the landlord serves a section 25 notice?
There is no longer any requirement for you to serve any counter-notice to the landlord's notice to inform the landlord of your intentions concerning the premises. However, depending on the circumstances, it is often helpful to discuss your position with the landlord and, if appropriate, start negotiations for the new lease. If you intend to vacate the premises, see What do you do if you want to leave the premises? above.

Tactical considerations
In a falling market, the current rent payable under the lease may well be above 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 date of the new tenancy. (See Part II of the Landlord and Tenant Act 1954: Frequently Asked Questions for further information concerning interim rent).

So, if you wish to stay at premises where there is a falling market, it is generally wise to serve a request for a new tenancy on your landlord as early as possible, i.e. serve your request twelve months before the lease expiry date.

In a rising market, there may be no advantage to you in serving a request for a new 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 landlord in a rising market will be keen to serve notice under section 25 of the Act so that it can obtain a higher rent as soon as possible. However, requesting a new tenancy will at least start the lease renewal process if you are keen to achieve some certainty.

For further information or advice please contact propertylitigation@charlesrussell.co.uk

These notes represent only an outline summary of relevant principles and detailed advice should always be sought in particular cases.