The lease renewal/termination process is commenced either by the landlord serving a ‘section 25 notice’ or the tenant serving a ‘section 26 request’. The earliest that the notice can be served is 12 months before the lease is due to expire. The notice must specify a termination date that falls between 6 and 12 months after it is served and which is not earlier than the expiry date of the lease.
Whether the landlord or tenant takes the initiative to commence the lease renewal/ termination process by serving a notice is likely to depend primarily on
- Whether the landlord wishes to obtain vacant possession in order to, for instance, redevelop the building
- Whether the rent under a new lease is likely to exceed the present passing rent under the current lease.
An interim rent (effectively the new market rent) will become payable from the latest of
- The date six months after service of the requisite notice
- The expiry of the term of the existing lease.
Therefore if the new market rent is likely to be more than the passing rent, the landlord has a commercial incentive to ensure that a notice is served no later than six months prior to lease expiry, so that the interim rent applies from lease expiry. Conversely, if the new rent is likely to be less than the passing rent, the tenant will wish to ensure that the interim rent applies from lease expiry. In practice however both parties usually wish to obtain the certainty of a new lease for a further fixed term, rather than allow the old lease to simply roll on for an uncertain term.
If the landlord chooses to take the initiative by serving a section 25 notice and it wants to oppose renewal altogether, it must specify one of the statutory grounds of opposition (such as redevelopment) in its notice (‘an opposed notice’).
If however it is happy to grant the tenant a new lease then it must simply set out the basic terms on which it is willing to do so, including the new proposed term of the lease and the rent (‘an unopposed notice’). Similarly, if the tenant commences the process by serving a section 26 request, it must set out the terms of the new lease which it proposes. Following receipt of a section 26 request, if the landlord wishes to oppose the grant of a new lease, it must serve a counter notice within two months specifying its grounds of opposition.