Can a landlord refuse to renew a commercial lease? To run a business in a commercial property, the preferable option is to own it yourself. But, with today’s world’s ever-changing demand and supply, tenants usually opt for leasing these commercial real estates. One of the main points of a commercial lease is the term of the lease, as it is quite long and up to many years, but it comes to an end one day. At that particular time, many tenants fall into the trouble of whether to renew the lease or find new real estate.
But the topic of concern here is what if your landlord refuses to renew the lease? And can they do this? The answer is yes. The landlord can refuse to renew the lease no matter how much your business is thriving.
But it is also not as simple as it seems; there are a lot of lease clauses and conditions that can revert the refusal and you can legally renew your lease. This article will go through all the relevant terms and requirements you need to know about commercial lease renew a lease.
What Is a Commercial Lease?
A lease is a special contract or document that regulates all the terms and conditions in which a tenant leases commercial real estate from a landlord. It mentions all the agreements both parties agree to.
When Can a Landlord Refuse to Renew a Commercial Lease?
A landlord can refuse to renew a commercial lease without giving any reason. In most states, the landlord has the legal right to refuse the renewal without providing a purpose, but there are some states where the court or law requires the landlord to give a valid reason. Following are the most common and certain circumstances when a landlord can refuse to renew the lease:
Fixed term tenancies:
If the tenancy term was fixed mostly for six months or less, in this case, the landlord could easily refuse the renewal provided the agreement is mentioned in the lease.
Waiving the right at the start of the lease (Tenant):
It is always suggested to be careful and pays attention to all the clauses in the lease. One of them is the renewal clause. If at the start of the lease you renounced your right to renew knowingly or unknowingly, you cannot do any such thing to renew the lease. That shows that your landlord intends to keep this lease as it is and not give you an option to renew.
Violating the policy or damaging the property:
In most situations, the tenants have breached the lease agreements. This includes exploiting the premises or using the property for other business activities than the one mentioned in the lease.
Delaying the rent:
We all know no landlord would like a tenant who doesn’t pay the rent on time. If the tenant is going through a tough financial time, they can request the landlord for compensation. But at the end of the day, if the landlord has a more reliable tenant, they can evict you from the premises.
The landlord is selling the property:
In this case, the landlord has no right to renew your lease. You can wait while looking for a backup plan and form a new lease with the new owner.
The landlord wants the property for their use:
It’s the landlord’s space, and they have all the legal rights if they want to use them for themselves.
Why Does a Landlord Have the Right to Terminate or Deny You the Right to Renew?
When a tenant leases the property from the landlord, both parties negotiate and agree to call a lease. Both parties have rights and responsibilities regarding premises and activities carried out in a lease. Since a landlord owns the property, they have every legal right on the property.
Suppose the landlord follows all the legal procedures and sends you a notice of lease termination — which is in most US states— 30 days or sometimes 60 days before the expiration of the lease. You have no choice but to convince and negotiate with the landlord or vacate the space. The landlord, in these cases, owes no explanation other than a single reason not to renew the lease. But before agreeing to anything, we suggest you go through your lease again and find the relevant clauses.
In other cases, suppose you wish to renew the lease, so you send your request for renewal to the landlord. If the landlord has refused the renewal according to the time mentioned in the lease, you have no choice but to accept it.
How Can You Prevent a Landlord from Refusing to Renew Your Business’s Lease?
If you are adamant about not leaving your current real estate because of some reasons or you have no luck finding a new property that suits you, then the only choice left is to negotiate or get legal advice. You can surely prevent the refusal by remaining compliant with the lease clauses and not violating and exploiting any rights. Some of the important lease clauses are.
Suppose you are a tenant who takes good care of the premises and pays the rent on time. A good landlord would favor you because who doesn’t love a stable income?
In the United Kingdom, you have The Landlord and Tenant Act 1954 (the act), which provides commercial leaseholders’ security of tenure. According to this act, if the tenant has not breached any policies or the landlord doesn’t have any valid reason to refuse renewal, the landlord is subjected to renew the lease. This protects the tenant in cases of landlord retaliation or discrimination acts.
Also, you need to sit and talk it out to the landlord about the renewal lease. If both parties can negotiate clauses and market value and come to an agreement, it’s well and good, but in case there is no agreement, you can take the matter to court, and the court, after some expert advice, can reach up to a lease both tenant and landlord have to accept.
What Should You Do if Your Landlord Wants to Deny You the Right to Renew?
The right to renew a commercial lease comes to both ways. For a renewal, both parties have to come to a middle ground. If your landlord is breaching your lease agreements and terminating the lease without prior notice or denying your right of renewal if it is mentioned in the contract, you can take your matter to court.
Most of these cases are of retaliatory or discriminatory nature, and the tenant protection laws of your state would protect your rights. Therefore, it is always suggested to consult a legal advisor in these circumstances.
Basics of Commercial Lease Renewal
If we go back to basics about lease renewals, there are just a few more things you need to know, which are as follows:
- As they say, knowledge is power. You should fully understand all the clauses and terms of your lease before signing it. This comes to a handful in the future, for example, during renewal times.
- Renewal clause: Most of the leases would have this clause. It includes terms, notice, the time frame of notice, and fair market value. It is suggested that you should negotiate these things with the landlord at the start of the contract to avoid future contradictions.
- Study the market: Before jumping into lease renewal, you should always study the market. The reason is that sometimes when you renew a lease; it is without studying the market drivers. You are falling at a disadvantage. Market values change every day, and maybe the real estate is not as valuable as you bought it, so with the help of a commercial real estate agent or broker, you should negotiate these terms.
Strategies for Negotiating a Lease Renewal
For negotiating a renewal, you should implement the following tips:
- Continually monitor and stay ahead of the market
- Understand your landlord’s profits of renewal
- Research alternatives in the market
- Keep a lookout for what your business needs
- Hire a real estate agent for better negotiation
Frequently Asked Questions
What is the security of tenure?
The security of tenure is a right granted to the tenant to automatically renew their commercial lease when the lease terms end.
What happens when the contractual term ends?
At the expiration of the contractual lease, the tenant can choose to stay on the property, called holding over, provided neither tenant nor landlord has sent a notice, sent a renewal notice, or vacated the property.
What is holding over?
The holding over is an indefinite period in which the tenant keeps using the real estate on the same lease terms until one of the parties sends a notice deciding the future of the lease.
The discussion concludes that a landlord has the right to refuse a lease renewal under certain conditions. If there has been a breach of policy or violation of regulations, the landlord can deny the right to renew legally.
But In cases of retaliation or discrimination, the tenant protection law of the state would side with you if you abided by the renewal clause in the original lease agreement. In most cases, the situation is handled by simple negotiation and amending some terms.
From an expert view, it is always suggested to have a backup plan to avoid future problems. You should always search for an alternative space if your landlord refuses to renew your lease at the end of the contract. But you should never jump into renewal without prior negotiation with the landlord. If your landlord fails to provide a legal reason for refusal, the court will help renew the lease.
Sheena Whitlock, a property expert, and blogger with over 15 years of experience in the field. The knowledge and skills Sheena has acquired during her career have given her invaluable insight into the property management business.
She has done her Property Development BSc (Hons) from the University of Portsmouth and completed her Master’s Degrees in Property Management from the University of Chicago.
As a professional, she has spent time working for various companies as a property management officer and currently works at Asset Info Hub where she shares her knowledge and experience on various property matters with people around the world, questioning their queries via blogging and virtual consulting services.