Things to consider when your lease comes to an end
Posted on 28th October 2019 at 17:09
When a lease comes to an end it can be more expensive to deal with than when the lease was entered into. Things to know:
• A lease will automatically come to an end if the tenant moves out on the last day of the lease.
• If you have what is known as security of tenure and you decide to stay on, then the lease will continue on the same terms until one party serves a statutory notice. The rent is still payable until the end of the notice period.
• If you have security of tenure and want to renew the lease then you must serve a notice on the landlord giving at least six months and but no more than 12 months notice and you must confirm your proposals for a new tenancy.
What Rights does a Landlord’s Have?
• A landlord can serve a notice on the tenant confirming whether they are willing to grant a new tenancy or whether they want the tenant to leave.
• A landlord can only object to the tenant getting a new lease on certain grounds - such as persistently late payment of rent, failure to keep property in good condition, or for breaching some of the lease terms or where a Landlord wants to develop or occupy the property themselves.
If the parties cannot agree either on the terms of a new lease or whether or not the tenant is entitled to a new lease then the matter will be referred to the County Court.
How problems occur?
Many business tenants discover that their problems begin when they move out of the property they have been renting. A landlord usually serves them with a document called a ‘schedule of dilapidations’ which highlights repairs which can cost of thousands. Landlord can also claim months of rent for the period the repairs take to be done.
Tenants should to take legal advice well before lease ends to make the right decisions.
Key Points to Consider Include:
• Whether the lease has security of tenure or not, will change the position of whether you have the right to stay on or not
• If you do have security of tenure whether the landlord has the right to remove you anyway under one of the established grounds.
• If the lease has a break clause how to serve the required notice at the right time
• How to reduce the chance of getting large repair bills at the end of the lease
• What obligation do you have to carry out repairs and what are the landlord’s obligations
• Is there a deposit to return and if so how much and when.
Most disputes at the end of a lease are about ‘repairs’. Most leases are ‘FRI’ which stands for FULL REPAIR LEASE which means the tenant has to put the property into full repair and decorate it before they hand it back to the landlord. The property may have been in very poor repair when the tenant moved in but if it is a ‘FRI’ lease the tenant will have to put it into A1 condition before he moves out. If the tenant moves out without doing this the landlord will send a surveyor in to prepare a schedule of dilapidations showing all the work the tenants needs to complete.
Most tenants, though, will have agreed at the beginning of the lease that they don’t have to hand the property back in a better condition than it was when they took it on and the condition is recorded in a document called ‘Schedule of Condition’ which is signed by the parties and included in the lease. This usually takes the form of photographs of the property when they moved in and a detailed description of any faults at the start. The tenant will not have to repair these faults and if the property was in poor condition at the start the tenant can hand it back in poor condition.
If you want to stay on it will be best if you serve a statutory notice on the landlord asking for a new lease. The landlord may also serve a notice on you saying either that he will offer you a new lease or that he wants you out. In either case it is best if you follow the right procedure or risk losing your rights.
An important thing to note is that if you stay on you may have to pay stamp duty. You may have to send the Inland Revenue a Stamp Duty Land Tax return if the lease was dated after 1st December 2003, or if you had to paid any SDLT when you took the lease or if the ‘Net Present Value’ of the rent paid under the lease plus one year exceeds £150,000. If you do not send this in within 30 days from the end of the lease you will face a penalty. You will have to send a return in every year that you stay on if one is due.
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
Tagged as: Commercial Property
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