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Most tenancies of commercial property are governed by the Landlord and Tenant Act 1954, which usually gives a tenant of business premises a right to renew its lease, at an updated rent, when the original term expires. There are exceptions where the landlord intends to demolish – or to occupy itself – and where the lease was “contracted out” before it began.
Generally, a lease should strike a fair balance between the interests of landlord and tenant. If it is biased against the tenant, this can rebound on the landlord when a new rent is fixed at rent review or on renewal. It there are overriding reasons for unusually “tight” restrictions on use or assignment, contracting out of the 1954 Act should be considered, to avoid this effect. Changes in the 1954 Act operate from 1 June 2004.
Under leases granted after 1995, a tenant’s liability for future rent, repairs and other obligations ceases when the lease is properly assigned. An exception is where the landlord can require the outgoing tenant to guarantee the obligations of its immediate successor – but only if the original lease provides for this, or if it is reasonable to require it.
Some landlords may wish to ensure that the tenant occupies the premises for its own business. Taper relief from capital gains tax at the more favourable business rate already applies where the tenant is an unquoted company; from April 2004 this will also apply where the tenant is a sole trader or partnership.