When you need a bit more time… consider a reversionary lease

A lease will seldom end at a time that is most convenient to the landlord and tenant. It may suit both parties to agree a further term now, well in advance of lease expiry. They can do this by completing a reversionary lease.

Consider a commercial lease that will expire in 2017. The tenant’s business is thriving. It already knows that it will need the premises for a further period. 

The landlord is content with its tenant. The tenant has a track record of reliable rent payments and has complied with lease covenants. The landlord is mindful that it may be costly to re-let the premises in 2017. There may be a void period between tenants where the landlord would lose out on rent and may be liable for business rates.

Why not vary the existing lease to extend the term? This would trigger an implied surrender and re-grant of the lease, with unintended tax, land registration and other consequences for both parties.

The solution may be to complete a reversionary lease now, for a further term commencing in 2017 immediately following expiry of the existing lease. The reversionary lease will usually be on the same terms, other than the rent. The parties may agree the rent for the further term now. Alternatively they can include a rent review on the first day of the new term in 2017 to fix an appropriate market rent at that point.

On expiry of the existing lease the parties’ relationship will move seamlessly to be governed by the reversionary lease. This will leave them free to pursue their respective business interests rather than deal with the uncertainties of a lease renewal.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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