Commercial Landlords ' How To Document A Short Lease Extension?

• Published date: 11 September 2023
• Subject Matter: Real Estate and Construction, Landlord & Tenant - Leases
• Law Firm: Myerson Solicitors LLP
• Author: Myerson Solicitors LLP

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.

Importance of Formally Documenting Lease Extensions

Any 'extension' should be formally documented to regularise the position and make it clear upon what terms the tenant continues to occupy the premises following the expiry of the lease term.

If this is not done and the tenant continues to occupy and pay rent, the tenant may acquire security of tenure, which will cause difficulties for the landlord in taking back possession of the premises.

Short-Term Licences to Occupy

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.

Tenancies at Will

Another option is to enter into a tenancy at will, which will create a tenancy that is terminable at any time by either party.

Like a licence to occupy, a tenancy at will does not confer security of tenure or attract SDLT.

These are short documents and are usually quick to negotiate, but they are somewhat...