Under the Landlord and Tenant Act 1954, there are different procedures for renewing a lease depending on whether the landlord or the tenant starts the process.
The landlord can initiate a renewal by serving a Section 25 notice on the tenant, or the tenant can initiate a renewal by serving a Section 26 request for a new tenancy.
Once a valid Section 25 notice has been served, it cannot be unilaterally withdrawn or amended.
Either the landlord or the tenant can apply to the court for the terms of any new tenancy to be adjudicated by the court, if they cannot be agreed, as soon as a section 25 notice has been served.
When can a Section 25 notice be served?
If the tenancy continues under section 24 of the LTA 1954, the landlord can serve a Section 25 notice before or after the end of the contractual term. The tenant would have to remain in occupation for business purposes.
Section 25 notices must be served no more than 12 months, nor less than six months before the termination date specified in the notice.
A Section 25 notice cannot be unilaterally withdrawn or amended.
The tenant is not required to serve a counter-notice stating whether it is willing to give up possession of the property.
Procedures where the tenant is starting the renewal
The tenant can request a new business tenancy by serving a valid Section 26 request on the competent landlord. A Section 26 request must comply with the statutory requirements to be valid.
The commencement date specified in the request cannot be before the contractual expiry date of the current lease.
If the landlord wants to oppose the tenant's request for a new tenancy, it must serve a counter-notice within two months of the tenant's request.
Service of a Section 26 request does not oblige the tenant to take the lease. The Section 26 request is simply the trigger to initiate the renewal process. A tenant does not need to have any genuine intention of taking a new lease.
The landlord may oppose the tenant's request by opposing the tenant's court application or by applying to the court itself for the lease to be terminated.
The landlord does not have to accept the tenant's proposals and may put forward its own proposals.
The parties may agree to extend the date for applying to the court while negotiations take place.
The tenant may not apply to the court for a new tenancy unless the landlord has previously given a counter-notice opposing the tenant's request.
Applications to the court to determine the terms of the new tenancy
If the parties cannot agree on the terms of the new lease, either party can apply to court for an order for the grant of a new tenancy.
Where the landlord initiates renewal, either party can apply to the court as soon as the section 25 notice has been served.
Where the tenant initiates renewal, neither party can apply to court until the landlord has served a counter notice or the date two months after the tenant has made its section 26 request, whichever is the earlier.
Neither the landlord nor the tenant can apply to court if the other has already done so and has served the application.
Deadlines for making the court application
The court application must be made by the end of the "statutory period". The statutory period ends on either of the following dates:
- The day specified as the termination date in the landlord's section 25 notice
- The day before the commencement date specified in the tenant's section 26 request.
If no application is made by the end of the statutory period the tenant will lose its right to a new lease. The lease renewal process will be over and the tenant will have no right to remain in occupation of the premises.
Time limit for court application can be extended
The parties can agree in writing to extend the date for making an application to the court, provided they do so before the deadline expires. Further extensions are permissible provided that the landlord and tenant agree to this in writing before expiry of the current deadline.
If the parties agree to extend the deadline for applying to the court, the landlord's section 25 notice or the tenant's section 26 request will be treated as terminating the tenancy at the end of the last extension period agreed.
Interim rent
Interim rent is the rent that may be payable when a tenancy continues under Section 24 of the LTA 1954, rather than the contractual rent that was payable under the lease, provided an application to court is made asking the court to decide how much the interim rent should be. The application can be made by either the landlord or the tenant in the claim form or acknowledgement of service.
Negotiating the terms of the new lease
The majority of the lease, if not all of it, will usually be negotiated by the landlord and the tenant without resorting to court. Once a term of the new lease is agreed, this should be recorded in writing.
Discontinuance and costs
Unless the court orders otherwise, a claimant who discontinues a claim (ends the court proceedings) is liable for the costs which the other party incurred up to the date on which notice of discontinuance was served.
Where the negotiations have not been particularly contentious and proceedings have been issued merely to preserve the tenant's right to a lease renewal, the parties often agree to pay their own costs. In such circumstances, instead of issuing a notice of discontinuance (which would result in the claimant being liable for the defendant's costs) it may be more appropriate to enter into a consent order bringing the claim to an end and reflecting the agreed costs position.
If the rent, length of the new lease or another term of the new lease cannot be agreed, it may be necessary to serve witness statements and/or expert reports on the outstanding issue, and the court may have to hold a hearing to make a decision on the terms of the new lease. If a full hearing was required, depending on the number of points that the court was being asked to decide, the entire costs of the lease renewal process could be as much as £20,000 plus vat.
The costs could also be much higher if the grant of a new lease was being opposed.
