What happens when a business lease is up?

[Conor In Dub]

Say you're buying a business from an existing owner and there's only 3 years left on the lease. Now after the 3 years you've built this business up and things are going great .... but the lease is up. Isnt there a chance the building owner can just turf you out legally?

Also, if - say - a new 20 year lease is offered by the building owner when the 5 year one is up (or a 5 year, or whatever); does the business owner have to pay a premium for this or does he simply continue with the rent payments?

 

[MichaelBurke]

Say you're buying a business from an existing owner and there's only 3 years left on the lease. Now after the 3 years you've built this business up and things are going great .... but the lease is up. Isnt there a chance the building owner can just turf you out legally?

Also, if - say - a new 20 year lease is offered by the building owner when the 5 year one is up (or a 5 year, or whatever); does the business owner have to pay a premium for this or does he simply continue with the rent payments?

Yes the landlord could turf you out and seek new tenants, maybe good to go into negotiations early for an extension, particularly now when things don't look good in the economy.

Also I would strongly recommend using a agent to negotiate your agreement, I think it's worth the money, they should be aware what is a normal/average rent for similar type premises.

 

[8till8]

Sorry MichaelBurke I don't think you're correct...
A tenant has quite strong rights and entitlements at the end of a lease and the landlord cannot simply move them on by not offering a new lease. A solicitor will advise more accuratly but I understand that a tenant is entitled to a new lease on the same terms as previous lease (except rent obviously)
Regarding a premium, the OP is a bit unclear regarding the question, a premium is commonly called key-money and in the current economic climate, any tenant who pays it is simply naive (or the premises is very unique). If the OP means does the rent continue at the same rate as before, then that depends on the deal struck (haggle!)

 

[Liar's Poker]

Sorry MichaelBurke I don't think you're correct...

A tenant has quite strong rights and entitlements at the end of a lease and the landlord cannot simply move them on by not offering a new lease.


Surely it depends on the term of the original lease to establish whether the OP has a right to call for a new lease and on what terms. Get legal advice!

 

[Conor In Dub]

Sorry to bump this. Similar question, different lease. I was looking at a business for sale today, rang the contact number and was told the lease is up in July. How does this work? Have I to negotiate a new lease for myself?

This area is far too grey for my liking, there should be clearer guidelines imho.

 

[elgransenor]

Conorindub,
I have just published an article on my website dealing with entitlements to new leases.

What you are referring to in your post is called Business equity which you are entitled to once you have 5 years continuous occupation as a business user.

The amount of time left on the lease is immaterial eg if the person from whom you are buying the business/lease has 5 years or more of continous occupation then he or you are statutorily entitled to a new lease.

Have a look at the article;its called 'New leases' (imaginitavely enough!)

There are 2 other equities recognised by law referred to in the article-improvements equity and long possession.

It is not a coincidence that a lot of leases are let on a 4year 9 month letting(it used to be 2years and 9 months when the requirement was 3 years continous occupation)

 

[murphaph]

I thought it was illegal for a landlord to ask for key money for a new lease.

A leaseholder can sell his interest in a lease for a consideration but I don't think a landlord can legally ask for money to give a lease to someone. Maybe that's in the UK though?

 

[mercman]

I thought it was illegal for a landlord to ask for key money for a new lease.

It's not illegal in Ireland or The UK. You might be mixing it up with key money for a different tenant when the business or lease is sold, where a landlord can ask for a large deposit.

 

[murphaph]

That must be what I read alright mercman. ta.

 

[Conor In Dub]

The amount of time left on the lease is immaterial eg if the person from whom you are buying the business/lease has 5 years or more of continous occupation then he or you are statutorily entitled to a new lease.

They dont. As said its someone selling a business where the lease is up in July, ya get me?

Im not entitled to Business equity as I dont have 5 years continuous occupation as a business user. I dont own the business yet.

So the crux of it all is I'll have to negotiate a new lease *before* I give the key money (to the business owner) or let the current owner negotiate it first if they have an established relationship with the building owner?

 

[elgransenor]

Conor in dub
You don't have a problem but the people who are trying to sell you that business have.

If I was you I would wait and I mean wait......the options then are
1) they fail to negotiate a satisfactory deal with landlord and vacant possession is handed up to the landlord.Then you step in and take the landlord out of his misery in seeking a new tenant on your terms in these difficult times

2)they negotiate a new lease in excess of 5 years with which you are happy and you then proceed with your deal

3) they negotiate a new lease with which you are not that happy and if you still want to proceed you negotiate a new deal with them based on the changed circumstances

Remember you are proposing to pay them key money for goodwill and premises out of which you can be turfed in the next few months if the landlord so wishes.

They really don't have a right imo to expect key money if their lease expires within months and they don't have any business equity.

 

[murphaph]

Im not entitled to Business equity as I dont have 5 years continuous occupation as a business user. I dont own the business yet.

But does the existing leaseholder have 5+ years continuous business occupation?

With reagards to assuming the landlord will be falling over himself to let the vacant premises-be careful. I am currently letting a retail unit and renegotiating an industrial unit in the same place and there has been massive interest in the retail unit with tenants to pick from and the renogiation for the other lease will involve a good jump in rent and the tenant has indicated he's not happy but will pay it. In a recession a good location is even more important!!

 

[Conor In Dub]

But does the existing leaseholder have 5+ years continuous business occupation?

No, the lease is up in June, the current business owner is going back to their home country in June.

They have said they'll introduce me to the building owner for me to setup a new 5 year lease. Dont worry, Im looking at this with my eyes wide open and I wont be doing, signing or spending anything till I see accounts and satisfactory paperwork.

 

[mercman]

Is the existing lease greater than 5 years. If it is you may have rights for an automatic extension. If only for 5 years, the likelihood is the landlord will want to vacate the property.

 

[Conor In Dub]

Is the existing lease greater than 5 years. If it is you may have rights for an automatic extension. If only for 5 years, the likelihood is the landlord will want to vacate the property.

Existing lease is up in June.

Ive always understood that if you're given a lease for longer than 4 years 9 months that you have rights for extension.

 

[elgransenor]

You need 5 years continuous occupation and thats why the practice is for solicitors and landlords to only issue a lease for only 4 years and 9 months-to prevent the tenant's right to a new lease arising.
Assuming of course that they want to let the property for a short letting;some landlords will be only too happy for the tenant to take on a 20/35 year lease.

 

[murphaph]

When did the existing tenant start his business in the premises?

Did he continue a lease from someone else?

 

[Conor In Dub]

When did the existing tenant start his business in the premises?

Did he continue a lease from someone else?

Im going to check all that when I see the CTO. Does it matter if it was a continued lease?

The one bit of advice I was told to remember in business is always check the details of a lease down to the very fine print.

Thanks for the replies so far.

 

[murphaph]

Does it matter if it was a continued lease?

Yeah because the business equity is determined by the length of time in occupation by the tenant and his predecessors not just the present business owner/leaseholder.