So, you are a tenant and have successfully negotiated commercial terms on a short term commercial lease. When you receive the documents, you will likely also receive something called a Section 104 Certificate.
So, what is this certificate about?
Under section 104 of the Leases (Commercial and Retail) Act 2001, where the term of a lease (including any option periods) is cumulatively less than 5 years, the tenant must be given an option to extend the lease so that the length of the lease (including the options) is for a period of 5 years.
For example, if the term of the lease is 1 year, then the landlord must give the tenant the option of extending the lease for another 4 years.
This right may be exercised by the tenant at any time before the last 90 days of the lease term and must be done by notice to the landlord in writing. Where this right is exercised, the landlord has no choice – they must take all reasonable steps to register the extended lease if asked to do so.
However, this right can be waived by the tenant if an independent lawyer signing what is called a “Section 104 Certificate, in which the lawyer confirms that they have advised the tenant of the rights granted under Section 104 and the tenant has agreed waive that right.
So, it is voluntary then?
Yes and no. Strictly speaking a landlord cannot force a tenant to waive their right under section 104. However, it is also near universally required that where the term of a lease is for less than 5 years this right of extension will be waived. Quite simply, where a lease term of less than 5 years has specifically been negotiated, landlords will often simply refuse to grant that lease unless this statutory right to extension has been waived.
The reason for this is often that the landlord may be willing to agree to terms in a shorter lease that they may not agree in a longer one. If the parties had wanted a longer lease, then terms on that basis would have been negotiated and agreed. As a result, where a shorter lease has been negotiated then often a tenant practically has little option but to ‘voluntarily’ waive this right to extend.
If you have further questions or are uncertain about any aspect of your lease, please contact us, we are here to help.