The Coronavirus pandemic significantly affected many business sectors, and landlords may now wish to reassess their options in seeking to re-let their properties. Below we look at the top 4 things landlords should consider;
1. Checking for break clauses
Landlords should review their leases to see if they have break clauses coming up. Exercising a break can be a quick and inexpensive way of ending a lease. There have however been several cases where disputes over the validity of break notices have gone to court given that the break clause requirements have to be strictly complied with including the method of service or even if the right colour paper has been used! It is therefore advisable to obtain legal advice to ensure that the requirements of the break clause are satisfied to avoid an expensive dispute arising and the risk of a break notice being ineffective.
2. Check term expiry dates on leases
The first thing to check is whether the lease is protected or not protected under the Landlord and Tenant Act 1954 (“the Act”). Protection means that a tenant has a right to “hold over” after the expiry of the term and continue as a tenant and an automatic right to seek a renewal of the lease by serving a section 26 notice under the Act which can only be opposed by a landlord (assuming they wish to oppose) under certain grounds which are set out by the Act.
A landlord may wish to serve a section 25 notice under the Act where, for example, the market rent has increased to a higher level than is being paid by the tenant and the landlord wants to agree a new lease with a higher rent. There are separate forms of section 25 notice where a renewal lease is opposed or not opposed by the landlord. Both a section 25 or section 26 notice will bring the tenancy to an end and may result in court proceedings and therefore the pros and cons of such a step should be weighed up before notice is served and it is worth bearing in mind that a new lease can be renegotiated without the need for notice to be served. Serving notice however can be a useful tool in forcing the issue if the tenant will not engage.
If the lease is not protected by the Act as it has been “contracted out” by following the statutory procedure then the tenant should vacate on or before the expiry of the term of the lease. It is therefore advisable to regularly review when your leases expire and look to discuss renewal or the tenant vacating within say 6 to 12 months before expiry where appropriate and depending on market conditions.
If a tenant “holds over” under a contracted out lease then that can cause significant difficulties for a landlord as the status of the tenancy may become unclear. In that scenario a tenancy at will or a periodic tenancy may be created. A landlord is best advised to get legal advice before the fixed term expires where a new lease is not agreed or where a tenant has not confirmed that they will vacate. The situation can then be regularised through correspondence to avoid a costly dispute arising.
It is always worth bearing in mind that a surrender can be a very cost effective and quick way of bringing a lease to an end especially where a tenant is in arrears or will struggle to meet ongoing obligations and an alternative better tenant could be found. Any negotiations should be conducted on a “without prejudice and subject to contract” basis. The viability of finding an alternative tenant is best determined by a conversation with your property agent. It is worth bearing in mind that a surrender has to be mutually agreed and is best documented in writing. If legal assistance is needed on the proposed terms for any surrender or in documenting it then please contact our property litigation team.
The pandemic resulted in legislation that prevented landlords from carrying out forfeiture by peaceable re-entry due to rent arrears. That has now changed with the Commercial Rent (Coronavirus) Act 2022. If the arrears accrued during lockdown they are known as “protected rent debt” and if landlords cannot reach agreement over payment with their tenants they can take it to arbitration. If the arrears accrued after lockdown ended landlords can once again forfeit the lease by peaceable re-entry. A more detailed Insight will follow.
How can Tozers help?
For further help or information about anything mentioned in this article, or to talk to one of our dedicated team, please contact us.