Lease renewals are a pivotal moment in any commercial property agreement – impacting investment value for Landlords and business planning for Tenants. Whether you’re approaching the end of your lease or managing a portfolio, understanding the process and your rights can make a significant difference to the outcome.
In this blog, we explore the key elements of lease renewals, including the implications of the Landlord and Tenant Act 1954, how negotiations are approached, and what happens when parties can’t agree.
Inside vs Outside the 1954 Act: What Does It Mean?
The Landlord and Tenant Act 1954 can provide commercial Tenants with security of tenure, meaning there is a right to renew the lease at the end of the term. However, not all leases fall under this protection. A lease will either be inside or outside the Act – and this distinction matters greatly during renewal. There is currently a review of the 1954 Act however, we will provide a full update once the reform has been decided.
- Inside the Act
Tenants have a statutory right to renew their lease. The Landlord can only refuse renewal on limited grounds (such as redevelopment). - Outside the Act
The lease will expire at the end of the term unless both parties agree to renew. Tenants have no automatic right to remain in occupation, which gives Landlords greater flexibility but no security for the Tenant. Outside the Act leases are far more common as Tenant’s request more flexible lease terms post Covid.
How Are Lease Renewals Negotiated?
Lease renewals are an opportunity for both Landlord’s and Tenant’s to change the lease term and rent.
There is a famous case, O’May v City of London Real Property Co. Ltd, which is used as a sounding board for lease renewals. The main principle of this case is that The new lease will be the same as the old lease. If a party wishes to change any terms, they must show that it is fair and reasonable. To determine what is ‘fair and reasonable’ requires knowledge of the commercial property market.
The lease renewal process often begins 6 – 12 months before expiry, and the negotiation will usually involve:
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- Reviewing the existing lease
This includes analysing rent, any break clauses, service charges, alienation provisions, and use clauses. There might be onerous clauses which could be changed. - Assessing comparable evidence
For lease renewal negotiations, comparable evidence is key not just to agree the rent but also lease terms. Market rents are heavily influenced by comparable transactions in similar buildings or nearby locations. This evidence underpins negotiations on rent and lease terms. Rents may be adjusted for size, location, condition, incentives, or lease length. This is something that only a property professional would be able to establish. - Negotiating Lease Terms
Heads of Terms will need to be agreed, which documents the main terms of the new lease. Parties will need to ensure that any offers in advance of instructing solicitors to draft the new lease are marked ‘Without Prejudice and Subject to Contract’. - Legal Notices
Another key element is understanding what legal notices are available to help speed up the lease renewal – this applies to both Landlords and Tenants. Notices apply only to inside the Act leases. Whilst legal notices can be effective, Landlords and Tenants should proceed with caution. The notices ultimately draw a line in the sand to end the lease and more importantly trigger a court process where if the parties cannot reach an agreement, a court will need to make that decision. Costs will be incurred by both parties even if a negotiated agreement is reached.
- Reviewing the existing lease
What Happens If You Can’t Agree a Renewal?
If negotiations are failing, the next steps depend on whether the lease is inside or outside the 1954 Act.
Outside the Act
If no agreement is reached, the lease will simply expire, and the Tenant must vacate (unless a Tenancy at Will has already been agreed post-expiry). Landlords have greater leverage in this scenario. However, Landlord’s must be careful – should they allow the Tenant to remain in occupation past the expiry date and continue to collect rent, it can insinuate a periodic tenancy (they could gain security of tenure).
Inside the Act
As mentioned in the previous section, legal notices would need to be served following which either party can apply to court for a new lease to be determined. This is usually a last resort, as court proceedings are costly and time-consuming. The court will assess the lease terms, rent, and other affecting factors based on evidence.
The other mechanism, which is more likely, is Professional Arbitration on Court Terms (PACT). PACT is usually undertaken when only the rent is not agreed. Thankfully PACT is a ‘cheaper’ option and requires an Arbitrator, who is a commercial property surveyor, to make this decision. It’s still expensive and a last resort.
Often, the threat of litigation risk motivates both parties to reach a commercial settlement before reaching this stage.
How We Help Landlords and Occupiers
Our expert team supports both Landlords and Tenants throughout the lease renewal process – from initial strategy to final agreement.
We offer:
- Lease analysis – Reviewing existing terms and advising on renewal risks and opportunities.
- Rental valuation and comparable analysis – Providing robust market evidence to support your position.
- Negotiation – Acting on your behalf in renewal negotiations to secure optimal terms.
- Strategic planning – Helping Tenants align renewals with their broader real estate strategy, or advising Landlords on asset management.
Whether you’re aiming to secure long-term occupation, reduce liabilities, or maximise rental income, we bring clear, commercial advice to every stage of the lease renewal journey.
Need help with an upcoming lease renewal?
Get in touch with our team today:
📞 0161 244 5500
📧 info@canningoneill.com
