Many businesses aren’t aware the renewal of leases for commercial premises, governed by the Landlord & Tenant Act, is a litigious process.
It involves the courts or the possibility one of the parties to the negotiations can apply to the court at a moment’s notice. In lease renewals governed by the Act, parties are free to agree the terms of the new lease, but in the absence of agreement, the court will determine the rent and other terms.
Even when the courts get involved, most clauses in the lease will usually be agreed between parties without a hearing before the court. Negotiations for the renewal, therefore, need to be approached like any other dispute. This is the case, even if there is agreement that the tenant will have a new lease. Negotiations should be undertaken on a ‘without prejudice’ basis, so the parties can maintain flexibility.
It needs to be undertaken ‘subject to contract’ as well. The danger in not marking correspondence with the ‘without prejudice’ tag is that the landlord or the tenant may find that it has irretrievably committed itself to agreeing an issue, which it might later wish to change.
There can be occasions when it is important to get open agreement on, say, a preliminary point or a point of principle. Unless this point of principle is agreed, then negotiations will not proceed. To obtain an agreement, write an open letter, stating that it is outside the ‘without prejudice’ protection. Such a letter should not be marked ‘subject to contract’. The other side will need to signify their agreement to it in open correspondence. Agreements on points, designed to ensure there is ‘no going back’ must be in writing; the parties can’t rely on negotiations conducted face-to-face or over the phone and recorded in an attendance note.
Even when agreement appears to have been reached on a ‘without prejudice’ basis, either party can reopen negotiations and ask the court to determine terms of the lease. Until the lease has been granted or terms agreed on an open basis, there is no binding agreement for the lease for the purposes of the 1954 Act.
:: Richard Freeman-Wallace is a partner at Hay & Kilner.