Commercial property lease - advice required please

[LordHaveMurci]

We are renting a small industrial unit, been tenants for approx. 13 years but have been out of lease for some time (2012 I think). We pay the quarterly rent pretty much on time & cause the landlord & fellow tenants around us no grief at all.

Of the 16 units here, we are 1 of only 2 that haven't changed tenants in that period, some more than once & many went bust owing money & leaving the unit in a bad state.

The landlord is now getting very pushy about signing a new 3 year lease, he has increased the rent by 12.5% this quarter despite originally proposing a much lower increase.
We don't want a lease as we aren't sure how long we want to be here, what are our options? I think we are in a strong position to haggle a quarterly rolling contract as we have such a good track record, are there any compelling reasons for us to want a lease? The last empty unit took 7-8 months to let, not sure what incentives were given.

We have little in the way of fixings, machinery etc so moving would be a relatively simple job, all be it pointless as we would have to sign a lease on a new building probably!

[Jobbo]

You really need a surveyor's opinion regarding whether you can negotiate the deal you want, but here are a couple of potentially useful things:

- since you've been in occupation for a fair while and your lease ended a while ago, you have an implied tenancy (probably annual, possibly quarterly, based on the info you have provided). The landlord can't get rid of you unless he serves notice under the Landlord and Tenant Act 1954, which entitles you to call for a new lease (might not be that helpful if you don't want a new lease). He can't actually kick you out except on limited grounds (generally, occupying the property himself and redevelopment are the most likely) and he would have to pay you compensation if he was able to do so.
- if he serves notice and you don't respond within the statutory timescale, your lease will end.
- if he doesn't serve notice, there's no basis on which he can put the rent up (except by agreement) - he can't force you to accept a revised rent. One caveat: the lease which has expired may provide for rent reviews even after the expiry date, which might give him the opportunity to increase it.

So if you sit tight until you decide whether you want to move or take, say, a 5yr lease then he can't do much until he serves a 1954 Act notice on you.

[Johnniem]

Depending on the covenants to which you have agreed under your previous lease you might want to think about the question of dilapidations on the unit you are currently occupying. The cost of dilaps is often something that tenants (especially small companies) forget about and then find a massive drain on their resources when they want to leave the premises. Review the 'yield up' and repairing clauses in your lease as well as the 'landlords costs' section. This will give you an idea of the landlord expectations of you when you vacate. Perhaps a new lease, with dilaps negotiated out, may not be a bad idea? A schedule of condition (prepared by a chartered building surveyor, not just a bunch of photos appended to the lease) that records the state of the premises at the commencement of the lease term could be appended to the new lease and the wording 'so long as the tenant does not have to put the premises back into a better state or condition than as detailed in the attached schedule of condition' be included somewhere in the new lease.

The landlord may well want to increase the rental levels (why wouldn't he? That is why he owns property!) but, frankly, any good chartered commercial offices surveyor could negotiate this down, especially as the rental market seems a bit slow for those units. Pay someone to negotiate for you unless you think you can do just as well.

Good luck

[LordHaveMurci]

Some good advice, thanks. So even though our lease expired a while ago we are still bound by certain parts of it?

Last time we discussed vacating the landlord was happy with us giving the interior a lick of paint, that was a few years ago & the landlord has now changed as has the internal layout of the property (mainly changes by the landlord).

Reading the above, maybe we need a new lease incorporating the suggestions above with a 12mth breakout clause?

[Jobbo]

LordHaveMurci said:

So even though our lease expired a while ago we are still bound by certain parts of it?

Pretty much all of it - the terms of the implied continuing tenancy will be based on the terms of the old lease.

[LordHaveMurci]

Jobbo said:

LordHaveMurci said:

So even though our lease expired a while ago we are still bound by certain parts of it?

Pretty much all of it - the terms of the implied continuing tenancy will be based on the terms of the old lease.

So the advantages of NOT having a lease are very limited then?

[Jobbo]

Well, you get flexibility - but you need to be careful if you did want to terminate your occupation to give the correct length of notice. You'd need specific advice.

[LordHaveMurci]

Jobbo said:

Well, you get flexibility - but you need to be careful if you did want to terminate your occupation to give the correct length of notice. You'd need specific advice.

So my 1st step is to seek out a decent Surveyor then?

[Johnniem]

Correct OP. Go to www.rics.org.uk and 'find a surveyor' that does agency in your area (commercial, not residentail obv!).

[Jobbo]

Yes, a surveyor will be very helpful in deciding what you should do.

If you need to serve notice to terminate the current tenancy though, use a solicitor.

[LordHaveMurci]

Jobbo said:

Yes, a surveyor will be very helpful in deciding what you should do.

If you need to serve notice to terminate the current tenancy though, use a solicitor.

Thanks, hopefully won't be terminating if we can work something out.

Any suggestions for a decent surveyor in or around Exeter, much prefer recommendation to just picking one at random from the RICS website

[PurpleMoonlight]

Your lease hasn't expired, it has just passed its minimum contractual term.

The tenancy continues as before on exactly the same terms, including any rent review clauses. If the Lease states specific dates for rent reviews, as opposed to every 3 years for example, then the landlord has no right to increase the rent on you. The landlord would need to serve you a Section 25 notice bringing the current Lease to an end, and offering you a new one with the new level of rent.

The S26 notice must give 6 months notice of the termination.

If you cant agree the rent then the tenant can apply the County Court for a judgement.

Edited by PurpleMoonlight on Wednesday 25th June 15:59

[LordHaveMurci]

I have dug the old lease out, it is a standard Law Society lease apparently.

There don't seem to be any rent review dates after the two specific dates in the schedule, the last ending June 2012.

[PurpleMoonlight]

Then the landlord has no legal right to impose a rent increase on you.

You can of course voluntarily agree to one if you wish though.

[Chrisgr31]

Indeed there is no ability for the landlord to increase the rent without your agreement, although you'll need a new lease first.

Trying to think of someone I know who deals with commercial property down that way unsuccessfully currently.

[Jobbo]

Chrisgr31 said:

Indeed there is no ability for the landlord to increase the rent without your agreement, although you'll need a new lease first.

Doesn't necessarily need a new lease - if the landlord serves a s.25 notice (not s.26 notice as someone stated above - that's the tenant's notice) he can then apply to the court to set an interim rent. That would potentially force a rent increase before the new lease is agreed.

[PurpleMoonlight]

Jobbo said:

Doesn't necessarily need a new lease - if the landlord serves a s.25 notice (not s.26 notice as someone stated above - that's the tenant's notice) he can then apply to the court to set an interim rent. That would potentially force a rent increase before the new lease is agreed.

The S25 notice can only seek to increase the rent from 6 months after the notice is served.

[Jobbo]

PurpleMoonlight said:

Jobbo said:

Doesn't necessarily need a new lease - if the landlord serves a s.25 notice (not s.26 notice as someone stated above - that's the tenant's notice) he can then apply to the court to set an interim rent. That would potentially force a rent increase before the new lease is agreed.

The S25 notice can only seek to increase the rent from 6 months after the notice is served.

[EDITED for clarification] It's not a S25 notice which sets an interim rent. Firstly, the s.25 notice is a landlord's notice offering new terms; it doesn't in itself do anything to increase the rent until the new lease is completed. Secondly, an increased rent can be backdated by the court [Edited to add:] but only to the appropriate date - which is indeed 6 months from the s.25 notice.

I was, however, referring to the interim rent procedure whereby either party can apply to court to set the new rent while negotiations are ongoing. That does require a s.25 or s.26 notice to have been served first, but doesn't require either party to wait 6 months [Edited to add:] but does only vary the rent from the appropriate date.

Edited by Jobbo on Thursday 26th June 10:37

[PurpleMoonlight]

Jobbo said:

PurpleMoonlight said:

Jobbo said:

Doesn't necessarily need a new lease - if the landlord serves a s.25 notice (not s.26 notice as someone stated above - that's the tenant's notice) he can then apply to the court to set an interim rent. That would potentially force a rent increase before the new lease is agreed.

The S25 notice can only seek to increase the rent from 6 months after the notice is served.

That's not correct. Firstly, the s.25 notice is a landlord's notice offering new terms; it doesn't in itself do anything to increase the rent until the new lease is completed. Secondly, an increased rent can be backdated by the court.

I was, however, referring to the interim rent procedure whereby either party can apply to court to set the new rent while negotiations are ongoing. That does require a s.25 or s.26 notice to have been served first, but doesn't require either party to wait 6 months.

You are wrong.

The S25 brings the current lease to an end and requires 6 months notice. No rent increase can imposed, and certainly not backdated, applicable to that 6 month period unless the current lease facilitates such a rent review. In this case it does not.

The new lease offered by the landlord in the S25 can offer whatever rent they wish. If the tenant wants to effect the new lease, but does not agree to the rent being requested and cannot agree anything else with the landlord, then the tenant can apply to the County Court to decide. The landlord could request an interim increase as part of the application but in my experience would be unlikely to get it.

[Jobbo]

PurpleMoonlight said:

You are wrong.

The S25 brings the current lease to an end and requires 6 months notice. No rent increase can imposed, and certainly not backdated, applicable to that 6 month period unless the current lease facilitates such a rent review. In this case it does not.

The new lease offered by the landlord in the S25 can offer whatever rent they wish. If the tenant wants to effect the new lease, but does not agree to the rent being requested and cannot agree anything else with the landlord, then the tenant can apply to the County Court to decide. The landlord could request an interim increase as part of the application but in my experience would be unlikely to get it.

You are correct that interim rent cannot start from a date earlier than the appropriate date, which in the case of a s.25 notice would be 6 months from service of the notice. However, I was correcting your previous statement about the s.25 notice seeking to increase the rent; the s.25 notice must have been served before an application for an interim rent can be made under s.24. You don't seem to recognise that that application can be made the day after service of the s.25 notice, and doesn't need to be part of an application to set the terms of the renewal lease. I'm not sure if your experience is as a surveyor or solicitor, but it doesn't take much searching to find articles about landlords not realising they can make an interim rent application, and for any property where rents have increased it's likely to be granted. Why should the landlord lose out?

I think my previous post was misleading and I'll edit it.