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Negotiating lease renewals

02 Jan 2012

It is frequently overlooked that the renewal of leases for commercial premises which are governed by the Landlord & Tenant Act, is a litigious process.  In other words, it will involve  the courts or the possibility that one of the parties to the negotiations can apply to the courts at a moments notice. In lease renewals governed by the Act, the parties are free to agree the terms of the new lease, but in the absence of agreement, the court will determine the rent and the other terms. Even when the courts get involved, most of the clauses in the lease will usually be agreed between the parties without a hearing before the court.

Negotiations for the renewal, therefore, need to be approached like any other commercial dispute. This is the case, even if there is no disagreement that the tenant will have a new lease, the only disagreements being over the amount of the rent or other terms of the lease.

Lease renewal negotiations should be undertaken on a ‘without prejudice’ basis, so the parties can maintain flexibility in being able to trade one point for another. Like any negotiations for property transactions, it needs to be undertaken ‘subject to contract’ as well. The danger in not marking correspondence with the ‘without prejudice’ tag is that the landlord or the tenant may find that it has irretrievably committed itself to agreeing an issue, which it might later wish to change.

Having said that, there can be occasions when it is important to get open agreement on, say, a preliminary point or a point of principle.  Unless this point of principle is agreed, then the negotiations will not proceed further.  To obtain an agreement in such circumstances, you should write an open letter, specifically stating that it is outside the ‘without prejudice’ protection.  Such a letter should not be marked ‘subject to contract’. The other side will similarly need to signify their agreement to it in open correspondence.  Agreements on specific points, designed to ensure that there is ‘no going back’ must be in writing; the parties cannot rely on negotiations conducted face to face or over the telephone and then recorded in an attendance note.

To let

Even when agreement appears to have been reached on a ‘without prejudice’ basis, either party can re-open the negotiations and ask the court to determine the terms of the lease.  Until the new lease has been granted or the terms have been agreed on an open basis, there is no binding agreement for the grant of the lease for the purposes of the 1954 Act.

For further information contact Nicola Tiffen on 0191 232 8345 or email: Nicola.Tiffen@hay-kilner.co.uk

Please note: This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.