Commercial landlords – How to Document a Short Lease Extension?

There are various reasons why the parties to a lease may wish to ‘extend’ the term of the commercial lease, which is about to expire and does not have security of tenure (meaning the tenant has no statutory rights to remain in the premises at the end of the term).

The parties may be negotiating a new lease of the premises, which will not be ready before the end of the term, or, if the tenant is vacating, they may need additional time to move their belongings or to deal with terminal dilapidations.

One option is to enter into a short-term licence to occupy with the tenant, which will simply give the tenant permission to be on the premises as a licensee and will prevent them from becoming a trespasser.

Licences are attractive to tenants as they offer short-term flexible arrangements and do not attract Stamp Duty Land Tax (SDLT).

They are also attractive to landlords as they are personal arrangements which do not create an estate in land, bind successors in title or confer security of tenure rights.

However, licences to occupy carry some risk as they could, in fact, be construed as a lease, particularly where a tenant has been granted exclusive possession of the premises for a fixed term and rent.

In such a case, the tenant could possibly acquire security of tenure.

It is also possible to ‘extend’ a lease by deed of variation of the existing lease (which is about to expire) to extend the term.

However, this can have various unintended legal consequences, and it is usually inadvisable to proceed down this route.

If the existing lease was excluded from security of tenure, that will not carry over into the regranted lease, and if the correct statutory procedure is not followed for the regranted lease, the tenant will acquire security of tenure.

Further, the tenant may have a potential liability for SDLT, and if the landlord’s title is mortgaged, the regrant could put the landlord in breach of the terms of their mortgage.