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Opting Out of Commercial Leases

Sep, 2012

Since the enactment of the Civil Law (Miscellaneous Provisions) Act 2008 any Commercial Tenant is entitled to opt out of his Statutory entitlement to a further Lease of between five and twenty years which automatically arises after leasing a Commercial Premises for five years or more. Prior to this Act, Commercial Landlords faced a difficulty in that while a Tenant may have had no intention of exercising a right to renew the Lease it wasn’t possible to agree this at Law so if the Tenant assigned the benefit of the Lease to another party that other party might seek to renew the Lease. In an effort to get around the possibility of Tenants acquiring renewal rights Landlords often granted short-term Leases for a period restricted to usually four years nine months.

The 2008 Act sought to assist a Commercial Tenant who might wish to take a Lease and whose Landlord might previously have been unwilling to grant a Lease for a term which would trigger a right to renew the Lease. Since the passing of the Act the Landlord and the Tenant can freely enter into Leases for five years or more as the Landlord can be satisfied that he can obtain vacant possession at the end of the Term, if he wishes. All Commercial Tenants can opt out of the Lease since the passing of the Act – previously this was confined to Tenants who rented office accommodation only.
Prior to the passing of the Act Commercial Landlords often imposed restrictions on Tenants preventing them from granting a Sub-Lease for terms greater than four years and nine months. In those cases the original Tenant would usually be required to indemnify the Landlord against loss or damage suffered by the Landlord as a result of any rights of renewal arising out of such a Sub-Lease. The 2008 Act includes a provision whereby any Sub-Tenant can waive his rights of renewal. This allows existing Tenants more flexibility in off-loading unwanted space. The 2008 Act is particularly useful to existing Tenants who have the premises under a short- term Lease where, for example, they have built up a strong customer base in a specific location as the Landlord and the Tenant would be able to enter into a new Lease on the expiry of the existing Tenancy without the risk of rights of renewal being automatically acquired by the Tenant. The change brought about by the 2008 Act allows greater flexibility in the arrangements between Commercial Landlords and Tenants while at the same time striking a balance between Landlords and Tenants rights by ensuring that the Tenants cannot sign away the protections afforded to them by the Landlord & Tenant Acts without first having obtained independent legal advice in the matter.

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