DAC Beachcroft Real Estate Advisory Alert: Tip of the Week - Clear Heads at the Outset
Published 2 June 2014
Where a commercial lease enjoys the protection of the Landlord and Tenant Act 1954, at the end of the term the tenant will have an automatic right to renew the lease. At that stage you will need to agree terms for the new lease with the tenant. If terms cannot be agreed either you or the tenant can apply to the Court to determine them. To activate the Court procedure a landlord can serve a Section 25 Notice, or the tenant can serve a Section 26 Notice. Both forms of notice require the submitting party to set out their proposals.
Often parties will use the proposed terms from these notices as a starting point for negotiations, although the balance of the terms are typically agreed in subsequent correspondence without a set of agreed heads of terms ever being drawn up. This can result in ambiguity and uncertainty, and can significantly prolong lease negotiations and lead to disputes, as one or both of the parties seek to justify departing from the terms of the previous lease.
It is a good idea therefore to have formal heads of terms drawn up early on in the renewal process, documenting as fully as possible exactly what has been agreed between the parties. It is also advisable to have the proposed heads of terms reviewed by your solicitor before they are finalised to ensure your interests are adequately protected.