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As a commercial tenant, a longer term lease can be extremely beneficial. It provides your business with security as to your location and helps in maintaining a strong, local customer base. However, due to an array of reasons, you may not renew your lease by exercising your right of renewal. This article will outline what:

  • a right of renewal is; and
  • can occur if you choose or fail to renew your right of renewal.

What is a Right of Renewal?

Most commercial leases contain a right of renewal clause. This clause provides you with the right to enter into a new lease with your landlord when your initial term or current tenancy is coming to an end. Lease renewal differs from extending the term of your existing lease as you and your landlord are entering into a new lease agreement. To exercise your right of renewal, you must follow the procedure and abide by the pre-conditions set out in the right of renewal clause.

For example, most right of renewal clauses will:

  • detail pre-conditions that you must meet to exercise your right. You likely will forfeit your right of renewal if you have breached the terms of your lease; 
  • require you to provide your landlord with written notice that you are renewing your lease; and
  • set out a time period in which you must provide notice. For example, you may have to give your landlord notice three months before the end of your lease term.

If you have abided by the procedure and pre-conditions specified in your lease, your landlord cannot refuse to grant your business a new lease. Once your landlord has accepted your renewal notice, it is common practice to enter into a deed of renewal. Your business is formally granted your new lease upon entering into the deed of renewal.

However, there may be situations where you do not exercise your right of renewal. You may choose not to renew your lease, or fail to properly exercise your right of renewal. In such circumstances:

  • you can seek relief from the Court to order a renewal of your lease;
  • you can argue that your lease was renewed by implication;
  • your landlord may argue that your lease was renewed by implication; or
  • your lease will become a statutory tenancy.

Relief From the Court

You may be able to get relief from the courts if the reason that your lease was not renewed was that your landlord:

  • failed to remind you that your lease was due for renewal; or
  • refused to renew your lease on the basis that you breached your lease or failed to follow the prescribed procedure.

In such circumstances, the court can exercise its discretion and order your landlord to renew your lease. This outcome is likely to occur if:

  • your landlord failed to give you a clear opportunity to renew your lease by reminding you of your renewal option;
  • your breach of the lease was relatively trivial; or 
  • you made a simple mistake as to the procedure for giving notice of renewal. 

However, going to court can be an expensive and time-consuming process. If you do wish to renew your lease, it is best practice to comply with the procedure and pre-conditions outlined in your lease agreement. It may be useful to mark in your business’s calendar when your lease is up for renewal. This step will ensure that you do not have to rely on your landlord or risk failing to comply with the renewal procedure.

Renewal By Implication

If you do fail to comply with the specified renewal procedure, you may be able to argue in court that your lease was renewed by implication. To claim that your lease was renewed by implication, you will have to point to evidence that demonstrates that both you and your landlord intended to renew your lease. This evidence may be:

  • written correspondence between you and your landlord about renewing your lease; 
  • the fact that you remained in your premises without renewing your lease and your landlord allowed you to do so; or
  • ongoing payments of rent to your landlord.

However, if you decide to not renew your lease, it is crucial that you make this fact clear to your landlord. Your landlord could also argue that your lease was renewed by implication. If they are successful, your business will be committed to a new lease that you can only terminate through mutual agreement with your landlord.

Statutory Tenancy

If you do not exercise your right of renewal, your lease will become a statutory tenancy. A statutory tenancy is another term for a month-to-month lease. Unlike a normal lease, you can terminate a statutory tenancy at any time by providing your landlord with a 20 days written notice. You may wish to not exercise your right of renewal to acquire the flexibility and freedom that accompanies statutory tenancies. 

However, if you do wish to maintain the security that accompanies longer-term leases, it is best to abide by the specified procedure and renew your lease.

Key Takeaways

A right of renewal provides commercial tenants with the option to enter into a new lease with their landlord when their current tenancy is due to expire. If you do not exercise your right of renewal:

  • you can seek relief from the court to renew your lease;
  • you can argue that your lease was renewed by implication; or
  • your lease will become a statutory tenancy.

Regardless of whether you wish to renew your lease or allow it to become a statutory tenancy, it is crucial that you follow the correct process to achieve your intended outcome. If you need assistance with exercising your right of renewal, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a right of renewal?

A right of renewal allows a commercial tenant to enter into a new lease with their landlord when their current lease is due to expire. 

Is renewal of lease a right?

Most commercial tenants have a right to renew their lease. However, if there is no right of renewal clause in a commercial lease, that tenant will not have a right to renew their lease.

Can a landlord choose to not renew a lease?

If you follow the prescribed procedure for renewing your lease, and fulfill the pre-conditions, your landlord must renew your lease. 

What happens if a commercial lease is not renewed? 

If a commercial lease is not renewed, the lease will become a month-to-month lease. To avoid this outcome, commercial tenants can apply to the court for relief, or argue that their lease was renewed by implication. 

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