Commercial Property Lease Renewals - Length of Term

07 January 2015

Considerations on the impact of prevailing market conditions on the average length of lease terms In Northern Ireland

Market conditions in Northern Ireland and across much of the rest of the UK have been forcing down the average length of lease terms in recent years as tenants demand shorter and shorter commitments. Naturally landlords do not welcome this and the issue often comes to a head at the expiry of leases that were entered into many years ago. The current or recently expired lease may have been granted in the mid-1990s for an original term of fifteen or twenty years and whilst the parties may both be happy to renew the lease and may even have agreed a new rent they can be far apart on the issue of lease term. The landlord will be looking for a term as close as possible to the original term whilst the tenant will probably be looking to substantially reduce it. In most cases involving leases of commercial property the tenant will be able to refer such a dispute to the Lands Tribunal (a Court of record) for determination.The maximum length of lease that the court can grant is 15 years but subject to that, the court has a wide discretion and must consider what is reasonable in all the circumstances. The court will look at the particular factors affecting the landlord and tenant, such as (1)   the length of the term of the current tenancy; (2)  the length of term required to protect the tenant in operating its particular business; and (3) the parties’ reasons for seeking a term of the length requested.

Importantly from the landlord’s perspective, the court will also consider any genuine diminution in the value of the landlord's interest in the property that might arise from a reduced lease term and any hardship likely to be suffered by the landlord if the court were to grant a term of the length requested by the tenant. 

A recent English court decision in a contested lease renewal involving Iceland Foods has usefully illustrated this. Although the decision was given against the background of the relevant English legislation the equivalent Northern Irish legislation is to all intents and purposes the same and the decision would be noted, if not necessarily followed, by the Lands Tribunal in Northern Ireland. Iceland’s previous lease had been for a term of 42 years and on renewal it was seeking a term of only 5 years whilst the landlord wanted the maximum of 15 years. The local market comparables suggested a term of 15 years but the court did not consider that to be relevant. The critical factors were firstly, the potential damage that would be caused to the landlord’s interest if it was forced to grant a short term lease and secondly, the fact that Iceland had previously had such a long lease. The court decided that in all the circumstances Iceland should accept a 10 year term or no lease at all. 

Graham Pierce is a partner in Worthingtons Solicitors, Belfast specialising in Commercial Property.

 For more information and advice in relation to commercial lease renewals or regears please contact Graham via email at graham@worthingtonslaw.co.uk or on 02890279092.

 

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