Option to renew, and renew and renew
Most business premises are let out on commercial leases. This is an agreement between the landlord and the tenant, which sets out all of the relevant agreements and obligations between the parties. A commercial lease can be a long, complex document and will cover a wide range of aspects including: rent, length of lease, description of premises, repairing and insuring obligations and service charge, to name but a few. Many commercial leases also contain a mechanism to review the lease at the end of the lease term. As a lease can go on for a long time, it is vital to ensure that the lease is properly drafted. A recent case highlights the importance of getting these obligations right.
An option to renew is a term in a lease that allows the parties to agree to renew the lease when it comes to an end. Usually the further term of the lease and the number of times the tenant might be able to renew will be limited.
In a recent case, the landlord offered pretty straightforward, short leases to his tenants. The rent was £3,120 per year and the original lease was to last for one year. The tenant decided not to take legal advice on the content of the lease.
The tenant amended the lease that was sent to him. The tenant made his own changes to the lease – but the wording had the effect of creating a lease that could last forever. The tenant tried to register a 2000-year lease which, perhaps not surprisingly, the landlord tried to object to.
The case went to appeal a couple of times but in both cases, the tenant's attempt to resist the re-drafting of the lease was rejected. The court found that the tenant knew what he was doing and the court ordered the lease to be rectified so that it could only be renewed for a maximum of three years.
The tenant had taken advantage of the landlord's agent and the court was prepared to rectify the lease accordingly.
It is an interesting case as it highlights the importance to the parties of taking legal advice on leases which, on the face of it, seem quite straightforward. This was a relatively low rent and short term so there was a temptation not to take legal advice.
The courts are often unwilling to intervene and amend a lease that has been entered into. So, the moral of the story is to take proper legal advice on the terms of the lease at the outset.
If you would like to discuss this or any other landlord and tenant related issue, contact us.