Leases have never been straightforward, but proprietors still make assumptions regarding how they work. One common misconception is that when the lease ends, you must vacate the premises. However, if the lease was not excluded from the provisions of the Landlord and Tenant Act 1954 - this will be stated in your lease - you will be entitled to a new lease, unless the landlord can prove certain grounds of objection, principally redevelopment.
You should note that if you do not follow the strict procedures laid down in the 1954 Act you will lose your right to a new lease. Therefore, you should contact your solicitor six to 12 months before the end of the lease, or when you receive a notice from your landlord.
If no action is taken by either party the lease will continue indefinitely on the same terms and at the same rent (unless the lease provides for a rent review on the penultimate day of the term) after the end of the contractual term. However, the landlord may subsequently apply to the Court to determine the rent payable, which may be more than the current rent, during some of that period of continuation.
You can ensure that your current lease ends on the contractual expiry date, and that you do not incur any liability, by either:
After the contractual expiry date has passed, simply moving out is not enough to bring the lease, and its liabilities, to an end. Three months prior notice will need to be served.
If the lease is excluded from the 1954 Act it will end upon the expiry of the contractual term and you must leave by that date (unless otherwise agreed with the landlord). If you do not do so, you will be liable for:
The End Of The Lease
Does the end of your lease mean an end to your liability under the lease? Not necessarily. Most leases entitle the landlord to an indemnity for breaches of your lease obligations, whether or not discovered or claimed during the term.
This is particularly true in the case of the obligation to repair. Leases often permit the landlord to recover the cost of rectifying disrepair, arising during the term, and removing your alterations, after the end of the lease.
However, you should bear in mind that, although the lease may entitle the landlord to recovery of associated costs (eg legal and surveyor's fees), the actual costs of repair are limited in law to the reduction of the rental value of the premises as a result of that disrepair.
Consequently, if there are tenants in the area prepared to take a lease of the premises, at market rent and in that current condition, without any uncommon incentives, the landlord is not entitled to recover its costs. This obviously only applies to disrepair after the end of the term. Also, the period of recovery can often be limited (commonly to three or six months) after the end of the lease.
Tenants are often under the misconception that liability under the lease ceases after the sale or transfer of the lease. Not true. In nearly all cases you will retain a contingent liability. For leases dated prior to January 1 1996, you will remain contractually bound to the landlord even after you have parted with the lease. If the purchaser defaults, the landlord can seek to recover its losses from you.
Unfortunately, in most cases, this contractual bond is not released until the lease comes to an end.
For leases dated on or after January 1 1996: although you are released from your contractual bindings by law, if the consent of your landlord is required to the sale or transfer, your lease will often, as a matter of course, require that you guarantee your purchaser's performance of the lease obligations, although your liability will end when your purchaser itself sells the lease.
If your purchaser defaults, the landlord is entitled to recover its losses from you and, under the common provisions of such guarantees, you may be required to take a new lease for the remainder of the lease term, if the purchaser becomes insolvent or the landlord terminates the lease for a material default by the current tenant.
Statutory Compliance
Tenants sometimes believe that they are not responsible for compliance with statute and other laws that affect them (ie planning legislation), because they do not own the premises believing that this will be the responsibility of the landlord. This is not the case.
Nearly all leases make compliance with statutory requirements one of the tenant's obligations. This can involve great cost and may include the following, among other duties. To compy with the Disability Discrimination Act, businesses that provide services to the public, where the public visit the premises - unless by appointment - must make 'reasonable adjustments' where the premises may otherwise prevent access by the disabled.
The adjustments need only be reasonable and are considered in the light of the benefits provided weighed against the costs. You should remember that the 'disabled' includes all disabilities and not just wheelchair users. A disabled access audit is recommended by a specialist surveyor who can advise as to the adjustments that are needed.
If you cannot comply with the Act because of a legitimate reason, such as where you are not permitted to make changes, whether structural or cosmetic due to the terms of your lease, or the premises are in a listed building or a conservation area, you will have a defence if a disabled person brings any action against you.
New regulations came into force at the end of 2004, which require the carrying out of an asbestos risk assessment. If asbestos is found on the premises, you will either be obliged to manage and contain it or, if the asbestos is deteriorating, remove it altogether. You should bear in mind that non-compliance is a criminal offence, punishable by a fine and/or imprisonment, and compliance can be extremely costly. A full survey (including structure), before taking a lease, should reveal the presence of any asbestos and other defects.
Can you claim payment or compensation from the landlord, for your expensive fit-out works, at the end of the lease? Statute does allow for the payment of compensation, but unfortunately, it is nearly always excluded from most leases.
At the end of your lease your fixtures and fittings that are permanently attached to the premises are deemed to form part of them and belong to the landlord, unless provided otherwise by your lease. If the landlord does not agree to their removal they must be left behind. Therefore, when taking a new lease you should ensure that you have the option to remove your fit-out works whenever you leave (during or at the end of the lease) regardless of whether the landlord asks you to do so.
Is it true that once Stamp Duty Land Tax is paid on the grant of a lease, there is no further tax liability? Unfortunately, this may not be the case. A further liability could arise in a number of circumstances, including the following:
If the lease is not contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954, your lease will not come to an end on the expiry of the contractual term, but for the purposes of the SDLT legislation a new lease will be deemed to arise, which may incur a further liability to SDLT. Therefore, it is recommended that you consult your solicitor at least six months prior to the contractual expiry date.
Rent review
Many leases, usually those over five years in length, provide for a review of the rent. If your lease is dated after November 31 2003 and not granted pursuant to an agreement for lease dated before July 10 2003, and upon that review, or in the event of any other unplanned rental increase during the term, the rent increases by more than 5 per cent plus the increase in the Retail Prices (All Items) Index, you may incur a further liability to SDLT.
SDLT liabilities can be complicated and failure to submit a tax return and pay any SDLT due is subject to fines and, in some circumstances, criminal sanctions. Again, consult your solicitor.