Should I stay or should I go?

As we continue along the roadmap out of lockdown, and restrictions are easing, many companies are becoming ever more optimistic about getting back into the office to work. With the excitement comes apprehension. What are your options when your existing lease comes to an end? Tracy Cooper, Associate Director in our Occupier Advisory team, has been talking to Tara Goodwin from leading law firm, Shakespeare Martineau LLP, to share some of the key things for consideration.

So, here's one scenario...

You’ve got a lease end event coming up in a little over six months’ time. The lease provides you the right to remain once the lease has ended under the Landlord and Tenant Act 1954 (“the Act”).

Due to the impact of COVID-19 you’re still exploring what your post-COVID workspace should look like. Your team has spent the past 12-months working from home successfully, and the consensus is that most people would be happy to continue to work from home more whilst being able to head into the office for a few days’ a week.

Whilst you’re pretty sure you won’t need as much space as you did before COVID, you aren’t sure quite how much you can work without. Mitigating costs is preferred and/or the ability to ‘buy time’ before making a final decision on your accommodation strategy essential.

What are your options?

Do nothing, remain in the premises after the Lease Term has expired. This is known as ‘holding over’.

Advantages – rent under the Lease remains the same and could buy time for the tenant to decide on accommodation strategy.  Once a decision has been made you could either serve notice for the grant of a new lease under s.26 of the Act or serve a s.27 notice to end occupation. This could be attractive where market rents are expected to rise in the coming months.

Disadvantages – the lack of certainty, any party could serve a notice at any time. If the landlord wants certainty, they might be inclined to serve a s.25 notice to start the ball rolling with the lease renewal.

Option 2 – Landlord serves a Section 25 Notice

Advantages – rent under the lease remains the same for the first 6 months and you would have a defined period to decide on business strategy whilst maintaining business continuity. The period defined in the notice can also be extended by agreement of the parties. Should you decide to leave you may serve a section 27 notice.

Disadvantages – the period of notice is not less than 6 months and not more than 12 months. This gives the landlord control over the lease renewal process.  

Option 3 – Tenant serves a Section 26 Notice

Advantages - you can set the length of term for notice (again not less than 6 months and not more than 12 months) and put forward a suggested term for the new lease, which may go beyond the lease end date providing business continuity. You also have the opportunity to propose to take a smaller area (although the landlord may resist this). Rent under the lease remains the same for the first six months and this could be beneficial in maintaining the status quo whilst deciding on your longer-term accommodation strategy.

Disadvantages – you will be locked into the lease until the s.26 notice period ends. The landlord may decide to issue proceedings if negotiations are not progressing.

Option 4 - Vacate the premises at the end of the Lease Term

Advantages – you may choose to leave at the end of the lease term to avoid being ‘locked’ into a lease. This provides certainty for you when you don’t want to be tied into a further lease for the premises and you may have found a more attractive option elsewhere in the market or wish to let somewhere on a shorter term whilst deciding on a progression plan.

Disadvantages - costs may be slightly higher in the short term to compensate for flexibility. Inconvenience of relocating to serviced/managed/leased offices when another move might be necessary at a later date. Any claim for dilapidations will also be triggered.

Some final thoughts...

Deciding whether to renew your business lease can be a difficult decision and based on commercial factors. As always, we recommend that if you need detailed advice on how to serve any of the notices mentioned or you wish to obtain bespoke tactical advice on your lease renewal, first seek legal advice from a property litigation expert and a commercial property advisor.

For tactical commercial advice on how to exit your lease successfully please contact Tracy Cooper.

To discuss the legal principles covered in this article and when to use them please contact Tara Goodwin. Tara  is a solicitor at Shakespeare Martineau LLP specialising in property disputes. She advises both landlords and tenants on a range of landlord and tenant issues.

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