If your business leases a commercial property, you may reach a point where you want to change the terms of your tenancy or bring it to an end. This may happen if your company has grown and no longer suits the premises or has become less profitable so that you need to downsize. Equally, you may want to adjust the length of the lease or alter some of the terms.
If this is the case, you will have to submit a Section 26 Notice to inform the landlord that you would like to end the tenancy – or renew it after the term ends.
This article explores what Section 26 Notices are and how they can be used.
What is a Section 26 Notice?
Section 26 Notices are a legal document commercial tenants use to end their tenancy or renew it. This requires significant thought, because the Section 26 Notice needs to include any new terms the tenant wishes to add to the lease.
How does a Section 26 form work?
A Section 26 form is written up by the tenant and sent to the landlord for approval. It works by outlining terms for the new lease, which the landlord can choose to refuse or accept. The notice is based on the Landlord & Tenant Act 1954, which gives tenants the right to request a lease renewal on the commercial property.
Procedures for lease renewal under the Landlord & Tenant Act 1954
In order to submit a Section 26 Notice successfully, the tenant must follow the correct procedures.
Tenants and landlords sometimes opt out of Sections 24-28 of the Act, meaning that the tenant does not have the automatic right to renew the lease. If so, the tenant should not submit a Section 26 notice since they have chosen to forfeit their ‘security of tenure’.
Tenants will also need to define the new terms within their Section 26 Notice, including:
- The amount of rent they wish to pay
- Any break clauses they wish to include in the lease
- How long the lease term will last
After submitting the form, the landlord will have two months to consider the new terms and accept or reject them. If they reject the tenant’s request, they must have a valid reason to do so and then appeal to court (for example, if the tenant has left the property in serious disrepair or has persistently delayed rent).
If the terms of the Section 26 Notice are accepted, they are free to proceed and grant a new lease to the tenant.
Do you need to submit a notice if the landlord has already sent one?
No. If the landlord has already given a Section 25 Notice, the tenant cannot submit their Section 26 Notice. Instead, they must respond to the notice which has been submitted by the landlord.
When can a landlord reject a Section 26 Notice?
While the landlord is obligated to consider a tenant’s requests, they do not have to accept the terms of their Section 26 Notice. However, if they want to reject it, they only have seven legal grounds to do so. These are:
- Reclamation – when the landlord wants to reclaim premises for their own use
- Failure to pay rent – they can refuse to renew the lease if the tenant repeatedly fails to pay the rent
- Property development – if the landlord wants to develop the property significantly
- Offering alternative accommodation – if the landlord proposes other, suitable premises to move to.
- Damages to premises – if the premises have been damaged, and this is likely to continue
- Subletting – if this is done without permission
- Specific breaches of the contract – if the tenant breaches the contract in any other way
If the landlord successfully opposes the Section 26 Notice, they can submit a counter-notice for the tenant outlining the reason for their refusal.
When should the tenant send a Section 26 Notice to the landlord?
The tenant must submit their Section 26 Notice between 6-12 months before the tenancy is due to end. Neither the landlord nor the tenant can request that the tenancy ends before the date recorded in the lease.
When can the parties apply to the court?
Ideally, requests to end or adjust the lease will avoid the courts entirely. However, if necessary, both parties may submit an application to the court.
For tenants, any application to the court must happen after the landlord has responded to their Section 26 Notice – or if their 2-month period to consider the notice has ended. On the other hand, landlords can apply to the court as soon as they receive a Section 26 Notice.
If a Section 26 form is used, when is the last day parties are allowed to apply to the court?
The last day that either party can apply to court is when the new tenancy is due to begin – which is set out by the tenant in their Section 26 Notice.
It is possible to extend the date multiple times, but each new extension must be submitted before the current extension runs out. If they go beyond the time limit, the tenant cannot renew the tenancy under the terms of their Section 26 Notice.
How do rent payments work once a Section 26 Notice has been served?
If the tenant has chosen to serve notice and a lengthy dispute arises, they may have to pay interim rent. They are liable to pay this from the earliest date possible for the beginning of the new tenancy agreement (as laid out in their Section 26 Notice).
This is part of the reason why tenants are required to submit their notice no less than 6 months before the tenancy is due to end – ensuring that there is plenty of time to resolve any disputes before the new lease begins.
What should the tenant do to end a tenancy?
If a tenant wants to end their commercial tenancy, they must vacate the property by the end of the lease. If they don’t, the landlord may allow them to continue occupying the premises temporarily while they continue to pay rent.
However, tenants can only cancel this new arrangement with 3 months’ notice. So, it’s best for tenants to vacate the property on time so they avoid liability for ongoing rental payments.
Commercial leases can be complicated and require lots of consideration. It’s a good idea to get legal counsel so that you do everything by the book, and don’t have your Section 26 Notice rejected. If successful, submitting this notice is a good way to request better terms that suit your commercial tenancy and business model.