Imagine you own a building you have earmarked for redevelopment but, in the interim, you would like to continue earning returns on your investment in order to meet costly outgoings. So you agree to grant some short-term one-year leases to your existing tenants. One tenant has expressed an interest in staying a little longer and, because that suits your circumstances, you agree to give them a right to renew their lease for another year. Given that the arrangement is a one-off and over a short term, instead of drawing up a new lease you decide to use your standard short-term lease with a couple of amendments and your agent writes up an additional clause stating that the tenant can extend their lease for another year provided they give you notice.
At this point you would be forgiven for sitting back and thinking that in two years’ time you will have no problem getting the tenant to leave in good time to put your development plans into action. However, you might be surprised to learn that your position may not be as straightforward as you thought. Although at the time both parties intended the arrangement to be short-term, in fact your tenant may be able to ask you for a 2,000-year lease on the premises. This may seem unlikely but, if not properly drafted, an option to renew could potentially result in the creation of a perpetually renewable lease. Regardless of the parties’ initial intention, the 1922 Law of Property Act states that a perpetually renewable lease takes effect for a term of 2,000 years from the date of the original contractual term.
Whether or not you have created a perpetually renewable lease will depend entirely on the precise wording used in the relevant clause – careless drafting can lead to unintended consequences and it is wise to exclude all mention of an option to renew.
Although it can be tempting not to take legal advice from a solicitor in this type of situation, informed caution can often prevent issues in the future – to avoid potentially costly ransom-driven lease negotiations it is essential to be aware of the full impact of the law before signing on the dotted line.
For more information on all aspects of commercial property law or advice and assistance with your own lease negotiations, contact George Ide’s experienced real estate and business services team on 01243 786668 or email us at info@georgeide.co.uk.
Danii Jhurry-Wright. Partner. Commercial Property
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