Landlord and Tenant Act 1954 Part III
By Agata Marosz, Solicitor specialising in Commercial Property.
Option to renew a “contracted out” lease
Nothing in the Landlord and Tenant Act 1954 states that including an option to renew in a “contracted out” lease is prohibited.
The problem arises for the landlord however, when the tenant exercises the option, but the exclusion procedure has not been followed for the renewal lease.
As soon as the tenant takes advantage of the option to renew, the landlord and the tenant are then bound to enter into the renewal lease. Therefore, it is necessary that the landlord’s solicitor make sure that before the original lease is completed, the exclusion procedure for the original lease and the renewal lease is followed.
If the original tenant assigns the lease before the option is exercised, the landlord will serve a warning notice for the renewal lease on the new tenant and its guarantor, if applicable.
If the landlord assigns the reversion before the option is exercised, its successor may serve its own exclusion notices on the tenant.
An alternative to the above would be to insert a condition in the original lease that the exercise of the option is subject to the exclusion procedure being completed before such option is exercised. In this way, the landlord will be reminded of carrying out the exclusion procedure and in case of the assignment, the same should be subject to a condition that the lease cannot be assigned without the landlord’s consent. Otherwise, the landlord may find out too late about the assignment for the renewal to be excluded.
For advice on leases, please contact Agata Marosz.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.