What is a Section 26 notice and how does commercial lease renewal work?

For commercial tenants, the right to renew a business lease is one of the most valuable rights conferred by the Landlord and Tenant Act 1954. The Act sets out a specific procedure that the tenant must follow to claim a renewal, including service of a Section 26 notice. This guide explains what a Section 26 notice is, when to use one and how the renewal process works.

The Landlord and Tenant Act 1954

Part 2 of the Landlord and Tenant Act 1954 gives most business tenants security of tenure. This means that, unless their lease has been validly excluded ("contracted out") from the Act, they have:

• The right to remain in occupation after the contractual lease ends
• The right to a new lease on broadly similar terms, subject to a market rent

The Act applies to most tenancies where the tenant occupies the property for the purposes of a business. There are some specific exclusions (agricultural, mining, certain short-term tenancies) but the protection applies to the vast majority of commercial leases.

What is a Section 26 notice?

A Section 26 notice is a tenant's request for a new tenancy. It is the formal procedure by which a protected business tenant tells the landlord that they want a new lease.

The notice must:

• Be in the prescribed form
• Specify the date on which the new tenancy is to begin
• State the proposed terms of the new tenancy
• Be served on the competent landlord

Section 25 versus Section 26 notices

There are two main notices under the 1954 Act:

Section 25 notice

Served by the landlord. It either offers a new tenancy or states the landlord's intention to oppose renewal.

Section 26 notice

Served by the tenant. It requests a new tenancy.

Only one of these notices can be in play at a time. If the landlord has already served a Section 25 notice, the tenant cannot then serve a Section 26 notice for the same tenancy.

When should a tenant serve a Section 26 notice?

To start the renewal process actively

Some tenants prefer to take the initiative rather than wait for the landlord. A Section 26 notice puts the renewal process in motion.

To bring forward the renewal

A Section 26 notice can specify a start date for the new tenancy earlier than the contractual lease end, in some circumstances.

To force a discussion

Where the landlord has been unresponsive, a Section 26 notice forces them to engage with the renewal.

For strategic reasons

The timing of the notice can affect rent review or other commercial considerations.

The timing rules

The Section 26 notice must specify a date on which the new tenancy is to begin. That date must be:

• Not less than 6 months after service
• Not more than 12 months after service
• Not before the end of the contractual term (or the date the contractual term would have ended)

Getting these dates wrong invalidates the notice. Specialist advice on the timing is essential.

The landlord's response

Within two months of receiving a Section 26 notice, the landlord must serve a counter-notice if they intend to oppose renewal. If no counter-notice is served, the landlord cannot later oppose.

The counter-notice must specify which of the statutory grounds the landlord is relying on. The seven grounds are set out in section 30 of the 1954 Act and include:

• Failure to repair
• Persistent delay in paying rent
• Other substantial breaches
• Alternative accommodation being offered
• The landlord requiring possession to use the premises themselves (ground (g))
• The landlord intending to demolish or reconstruct (ground (f))

If the landlord does not oppose

Where the landlord does not oppose renewal, the parties negotiate the terms of the new tenancy. If they cannot agree, either party can apply to the court for the new tenancy to be granted on terms determined by the court.

The court will fix:

• The duration of the new tenancy (usually up to 15 years)
• The rent (a market rent assessed at the date of the new tenancy)
• Other terms (usually similar to the existing lease, subject to fairness)

If the landlord opposes

If the landlord opposes renewal on a ground of fault (such as breach), they need to prove the ground. The tenant has the opportunity to challenge the evidence.

If the landlord opposes on a no-fault ground (such as redevelopment or own use), the tenant cannot prevent termination but may be entitled to statutory compensation.

Statutory compensation

Where the landlord successfully opposes renewal on no-fault grounds, the tenant is entitled to compensation calculated on a multiple of the rateable value:

• One times rateable value (the standard rate)
• Two times rateable value where the tenant has been in occupation for 14 years or more

This compensation is a statutory entitlement and cannot be reduced by the lease (except by a valid contracted-out provision).

The court application

If terms cannot be agreed, either party can apply to the court. The application must be made before the date specified in the Section 26 notice for the start of the new tenancy.

The application is usually made to the County Court. The procedure is set out in the Civil Procedure Rules. The court will give directions, evidence will be exchanged and a final hearing will determine the terms of the new tenancy (or whether termination should be ordered).

Negotiation before formal proceedings

Most renewal disputes are resolved by negotiation, not by court order. The negotiation usually focuses on:

• The new rent (often the most contentious issue)
• The duration of the new lease
• Any update to the lease terms (modernisation of older clauses)
• Any user clause changes
• Provisions for tenant break

Expert evidence on rent (from a chartered surveyor) is usually exchanged. Negotiations often lead to settlement before the final hearing.

The interim rent question

Section 24A of the 1954 Act allows either party to apply for an interim rent for the period between the contractual lease ending and the new tenancy being granted. Where the market rent has increased, this benefits the landlord. Where rents have fallen, it benefits the tenant.

The interim rent is usually broadly similar to what the new tenancy rent would be, but the court has some discretion.

Common mistakes by tenants

Letting the lease expire without acting

If you do nothing, the contractual term ends but the statutory tenancy continues. This may not be what you want; the protection works best if exercised proactively.

Serving an invalid Section 26 notice

The technical requirements are precise. An invalid notice does not start the procedure.

Missing the deadline to apply to court

If terms cannot be agreed, court proceedings must be issued before the date specified in the notice. Missing this deadline can mean losing the right to a new tenancy.

Failing to address the rent dispute

Most renewal disputes turn on rent. Without proper valuation evidence, the tenant is at a disadvantage.

Engaging too late with strategy

The right time to start thinking about renewal is well before the lease end. Engaging only when notices have been served limits the options.

Common mistakes by landlords

Missing the counter-notice deadline

Failure to serve a counter-notice within two months means the landlord cannot oppose.

Choosing the wrong ground

The grounds of opposition are technical. Choosing one that does not fit the facts can be fatal.

Failing to demonstrate the ground

For redevelopment grounds, the landlord must prove a settled intention with a realistic plan and the ability to carry it out.

Contracted-out leases

Some leases are contracted out of the 1954 Act protection. For these, the tenant has no right of renewal. The contracting out must be done in accordance with the statutory procedure (an exchange of notices and a declaration).

If the procedure was not followed properly, the contracting out may be invalid and the tenant may have the right to renew despite the apparent exclusion.

When to take legal advice

Lease renewal is a specialist area. The technical requirements for notices, the strategic timing decisions and the substantive negotiations on rent and terms all benefit from specialist input.

A direct access barrister with commercial property experience can advise on strategy, draft the Section 26 notice, negotiate with the landlord and represent you in court if proceedings are needed.

Looking for a barrister at short notice?

Direct access means you can instruct a specialist barrister without going through a solicitor first. This is often faster and significantly more cost-effective, particularly where the case is already part way through. Send us a short outline of your case and our team will respond the same working day.