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A Guide to Commercial Leases & Lease Renewal

Put simply, a commercial lease is a legally binding agreement between landlord and tenant.

A commercial lease requires careful consideration by both parties; getting professional advice is crucial.  A Chartered Surveyor is ideally placed to advise either landlord or tenant in what can be a big financial commitment for businesses.

Before entering a commercial lease, you must allocate time and effort to determine your requirements. It is advisable to seek legal advice on the commercial lease before signing; you should fully understand the consequences of the contractual obligations therein.

A business lease could be as short as 6 months, or as long as 25 years.

Unless stipulated, shorter lease terms generally do not confer tenancy renewal rights to tenants, whereas longer terms (usually 5 years or more) will confer tenancy renewal rights under the Landlord and Tenant Act 1980.

If an agreement cannot be reached between the landlord and tenant over the right of a tenancy renewal, the matter can be referred to the courts.

Advice for landlords:

If a landlord does not want to renew the lease and the tenant hasn’t renounced his or her right to renew, the following steps should be taken:

  • Give prior notice no less than six months before lease expiry and within 12 months of lease expiry.
  • This notice should include the grounds on which you are refusing to renew and the date on which you would like the tenancy to terminate.

Should the refusal to renew make it to the courts because of a failure to agree, you, as landlord, need to be able to show one of the following:

  • Substantial breach of the current lease terms by the tenant.
  • Non-payment or persistent delays in paying rent.
  • That you are offering alternative suitable accommodation to the tenant.
  • That you require the property in order to develop it.
  • That you require the premises for the operation of your own business.

Advice for tenants:

  • You have the right to renew your tenancy except when you have renounced your rights to renew prior to or during the lease term.  To renounce your rights to renew, having taken independent legal advice, you must sign a deed of renunciation as part of your original lease – also known as ‘contracting out’ – which renounces all your rights under the Act.

The Civil Law Act 2008 covers the type of business eligible for contracting out. Previously it was restricted to office use only. Since the 2008 Act, retail, industrial, and other business sections are eligible.

You might be wondering why a tenant would contract out of a lease agreement. In fact, in the majority of cases, it is the landlord who proposes the contracting out. Say he or she wants to redevelop the building or sell it, they need to know the tenant won’t pursue his or her rights to renew the lease.

Commercial leases are a complicated area and if you are a landlord or tenant getting the correct advice is essential.  Get advice from an experienced chartered surveyor familiar with commercial leases. O’Neill and Co. Call us on 045 856604.

Read a related article on Commercial Assignments & Sublease Agreements

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