Generally, a right of renewal under a lease does not occur automatically. In most leases, including the often used ADLS Deed of Lease, the tenant must exercise this right by a certain time and must not be in breach of any other covenant. However, failure to comply with these requirements does not necessarily mean that the right of renewal is lost. Under the Property Law Act 2007, the Court has power to grant relief to a tenant whose landlord is refusing to enter into a renewal. Whether you are a landlord looking to move on or a tenant looking to stay on, understanding the Court’s right to grant relief against a landlord’s refusal to renew will be relevant.
The Courts generally tend to find in favour of the tenant and grant relief, unless there is some subsisting and substantial breach on the tenant’s part. Minor timing issues with the serving of notices of renewal generally will usually, all things being equal, lead to the granting of relief. So how significant does a breach need to be for the court to grant relief to a tenant?
The Court may, without limitation, make an assessment of the following factors:
- the reason for failure to give notice, for example, whether it was unintentional or accidental;
- whether the cause of the default was due to any action of the landlord;
- the tenant’s conduct, in particular, whether they have complied with all conditions and covenants and have been a good tenant;
- the prejudice to the tenant if the relief is not granted;
- the prejudice to the landlord if relief is granted;
- the landlord’s motivation for the refusal to renew and understanding of the tenant’s intentions; and
- whether the interests of third parties are affected.
In a number of cases brought to the Courts, a landlord has rejected a tenant’s exercise of a renewal on the basis that it is in breach for non-payment of rent for a considerable amount of time. The Courts have indicated that provided that a tenant’s breach is not persisting and is able to be remedied quickly, then the Court may grant relief in favour of the tenant (although potentially subject to a number of conditions).
However, tenants should be wary that they should not rely on the rights against refusal of renewal to assume that it is an automatic right of relief. While it is a useful remedy, no single factor is determinative of the issue and the Court will make a judgment on a case-by-case basis. Further, even where renewal is granted, it may be subject to conditions including an order to immediately pay compensation to the landlord.
Conversely, landlords should also be mindful that they cannot necessarily avoid a lease because of a strict failure to comply with the terms of the renewal. Particularly where the only failure is to give notice within the specified time period.
Whether you are a tenant or a landlord in this situation, where a right of renewal is not clearly excercised we suggest you obtain timely legal advice as there may be complex legal issues to navigate. Certainty will be paramount to both parties.