This is a basic ten point outline of the procedure for renewing business tenancies under the Landlord and Tenant Act 1954.
More often than not, terms will be agreed without taking all of these steps. If renewal is opposed by the landlord on one of the statutory grounds, this guide will not apply.
1. Starting the process
The statutory rights under the existing lease must be terminated by giving not less than six months’ notice but not more than 12 months’ notice. This is done by the landlord serving a section 25 notice or the tenant serving a section 26 request, setting out the proposed terms of the new lease. The notice and request must be in prescribed forms. The notice and request must be in prescribed forms. These time limits will apply even where the contractual lease term has expired and the tenant is holding over.
If they cannot easily be agreed, either party can make the application to court for the terms of a new lease to be determined. If a landlord’s s25 notice has been served, proceedings can be commenced immediately after service. If a tenant’s s26 request has been served, proceedings can start after two months from service of the notice. A party might want to issue proceedings early in order to put pressure on a party who is perceived to be dragging its feet.
A tenant must issue proceedings by no later than the date specified in the s25 notice or the day before the s26 request (unless an extension is agreed by the parties in writing) in order to protect its automatic right to a new lease.
4. Starting proceedings
Proceedings are issued by lodging papers at court with a fee. Legal advice should be sought because, in addition to deciding the lease terms, the court can make an order as to the legal costs of the case.
Settlement should be considered at all stages to avoid the costs of litigation and the risk of an adverse costs order. Formal offers of settlement (known as Part 36 offers) can be made to influence the decision the court makes about costs if the matter does proceed all the way to trial.
6. Interim rent
Either party can apply for determination of the rent payable during the statutory continuation of the tenancy until the new lease is completed. The advice of a surveyor should be taken as to whether this is desirable in the current market.
7. Service of proceedings and response
Once proceedings have been issued, the claimant can delay serving them on the defendant for up to four months. However, the tenant can compel the landlord to serve the proceedings. However, the tenant can compel the landlord to serve the proceedings. The defendant then has 14 days to file an acknowledgement of service setting out proposals for the new lease.
8. Progressing the case
The court will occasionally take steps to set a timetable for the management of the case. This will usually include directions for exchanging a travelling draft lease, preparing a schedule of terms in dispute, exchange of experts’ reports and an eventual trial.
It is usual to build into the directions a right for the parties to agree an adjournment in the litigation where no steps are required to be taken, so time can be taken to negotiate the terms. Where negotiation is unproductive the parties may consider formal mediation or appointing a professional arbitrator.
10. The importance of the phrase ‘without prejudice’
The effect of an offer being made on a without prejudice basis is that neither party can disclose the contents of the offer to the court, thereby giving the parties the opportunity to discuss terms freely without the risk that any offer they make will prejudice their legal case. Simply marking a letter ‘without prejudice’ does not protect it unless it contains an offer to settle.