A lease is essentially a contract between the landlord and the tenant that gives the tenant the exclusive right to occupy and use the landlord’s property for a period of time. A business lease is defined in the Business Tenancies (NI) Order 1996 (BTO 1996). Essentially, a business lease is a lease where the tenant occupies the premises for the purposes of its business.

If the lease is classed as a “business lease” under the BTO 1996, the tenant has certain rights to renew the lease at the end of the contractual term (although there are exceptions to this and these rights may be defeated by the landlord in certain circumstances).

Generally, a business lease is granted for a “fixed term”, that is, a fixed period starting and ending on fixed dates. It is important to know when the fixed term will end, and whether it can be terminated earlier by either party. The right to terminate early is usually referred to as a “break right”. Tenant break rights are sometimes linked to rent reviews so that, if the rent is likely to be unacceptable to the tenant, it can terminate the lease and limit its financial liabilities.

A business lease falling within the scope of the BTO 1996 will not finish at the end of the term stated in the document (the “contractual term”). Instead, it will continue until terminated in accordance with the detailed procedures laid down by the BTO 1996, which include the giving of at least six months’ written notice in a strictly prescribed form.

Right to renew

As mentioned above, the tenant of a business lease has certain rights to renew the lease at the end of the contractual term (subject to certain exceptions). The lease will continue until the lease has been properly terminated under the BTO 1996 or renewed and, until then, the tenant will have the right to remain in the property. This “state of limbo” is commonly referred to as the tenant “holding over” and during this period the tenant remains liable to continue paying the rent under the lease and to comply with all the other covenants and conditions in the lease, just as it did during the contractual term of the lease.

There are different procedures for renewal of a lease under the BTO 1996, depending on whether the landlord or the tenant initiates the renewal. The landlord can initiate renewal by serving on the tenant a “landlord’s notice to determine” under Article 6 of the BTO 1996. The tenant may initiate renewal by serving on the landlord a “tenant’s request for new tenancy” under Article 7 of Order. In either case, it is very important that the notice is served on the correct party and often a solicitor is instructed at this stage. For example, the person to whom the tenant pays its rent may not be the “competent landlord” for the purposes of the renewal process under the Order. Even serving a notice on a director of the company which is the landlord rather than on the company itself, may invalidate the notice.

If the landlord wants to oppose the tenant’s request for a new tenancy, it must serve a counter-notice within two months after the tenant’s request has been made. The landlord may only oppose a renewal of the lease on certain limited grounds which are set out in the BTO 1996. These include, for example, that the landlord wants to occupy and use the premises himself or that the landlord wants to redevelop the property and cannot do that with the tenant in situ. In the event that the landlord sustains those grounds of opposition and the tenant moves out, the landlord must pay compensation to the tenant for “disturbance”, the amount of which is based on a multiplier of the NAV of the premises.

If the landlord and tenant cannot agree on a new tenancy or on the terms of the new lease (most commonly the level of rent or length of term), either party can apply to the Lands Tribunal for a new tenancy. The application must be made within the prescribed time limits or the tenant will lose its right to a new lease. Again, most parties would choose to be legally represented by the time they reach this stage. The Lands Tribunal will then set the terms for the renewal, having heard the evidence produced by each party. Or, where they landlord is opposing the renewal, will determine whether or not the landlord has succeeded in bringing himself within the relevant ground of opposition contained in the Order.  

Procedures for renewal of a business lease, and indeed business leases generally, is a complex area and advice should always be sought from a suitably qualified professional with experience in this area. But tenants in Northern Ireland should be aware that they have strong, meaningful protections under the BTO 1996 and come the end of their lease, and if they are keen to renew, they should not feel that they have no choice but to accept the first renewal terms the landlord quotes.

England and Wales

Finally, it should be noted that the position governing leases of business premises situated in England and Wales is governed by the Landlord and Tenant Act 1954, which does not apply in Northern Ireland, and is different in several key respects to the position in Northern Ireland. Most notably, in England and Wales it is open to the parties to agree to disapply the security of tenure provisions of the 1954 Act – most importantly the tenant’s right to a renewal of its lease – a process known as “contracting out”. That option is not available in relation to property in Northern Ireland. The position in Scotland is different again.

Please do not hesitate to contact Graham Pierce and the commercial property team on 028 90 434015 for any commercial property queries.

The content of this article is intended to provide a general overview of the subject matter. Specialist advice should be sought about your specific circumstances.