A Guide To Security of Tenure and the Landlord and Tenant Act 1954
Security of tenure and The Landlord and Tenant Act 1954 are complex to understand for both landlords and tenants of commercial properties.
That’s why we have provided a short guide on security of tenure, including information on:
- What security of tenure is.
- A case study to explain how the Landlord and Tenant Act applies to a commercial lease.
- What tenancies have security of tenure.
- Information on contracting-out and how it excludes a lease from being a protected tenancy.
- What happens when landlords terminate a protected tenancy.
- Next steps if you need to resolve a security of tenure dispute.
What is Security of Tenure?
The Landlord and Tenant Act 1954 (‘The Act’) regulates how commercial tenancies can be brought to an end and provides commercial tenants with security of tenure.
In simple terms, business tenants have a statutory right to remain in occupation of their commercial premises and renew their lease at the end of the lease term.
Below we have outlined a short example of how security of tenancy may apply with regard to a commercial lease.
Security of Tenure for a Commercial Lease – An Example
Let’s imagine Mrs L owns a portfolio of commercial premises, one of which is currently occupied by Mrs T on a lease for a term of ten years. Three months prior to the expiry of Mrs T’s lease, Mr TP approaches Mrs L to take a lease of the same premises. Both Mrs L and Mr TP negotiate terms for a new lease at a rent significantly above market value.
In anticipation of the expiry of Mrs T’s lease and the potential income stream from a lease with Mr TP, Mrs L approaches Mrs T to confirm that Mrs T will be vacating the premises on expiry of the term. However, following a meeting with Mrs T, it is clear that Mrs T is not intending to vacate the premises as the footfall in the area has positively affected her revenue stream. Mrs T has obtained legal advice and she understands that she is entitled to renew her lease.
Mrs L then meets with her solicitors to discuss her options and is informed by them that Mrs T’s lease will not automatically come to an end because Mrs T has ‘Security of Tenure’. They advise that the process is more complicated and technical than Mrs L envisaged. Mrs L was unaware of this protection and now wants to know what it all means for her.
In this case, Mrs L cannot simply ask Mrs T to vacate the premises. Mrs T can remain on the premises on the same terms and at the same rent set in her initial lease until it is terminated in accordance with the Act.
What Tenancies Have Security of Tenure?
A tenancy that benefits from security of tenure will typically be a lease or underlease. It is also possible for other documents/agreements to enjoy this benefit even though they may be called something different.
Additionally, the tenancy must relate to premises occupied by the commercial tenant for the purpose of carrying out its business.
So in our example above, in order for Mrs L to have been able to grant a new lease to Mr TP following expiry of the lease to Mrs T, the lease to Mrs T should have been contracted out of the Act.
What is Contracting-Out?
The process of contracting out excludes the lease from being a protected tenancy. It is undertaken prior to the lease or agreement for lease being completed.
It required Mrs L’s solicitors to have served a warning notice in a prescribed form on Mrs T. Mrs T would have then be required to either sign a simple declaration or swear a statutory declaration (depending on the time such notice is served).
The simple declaration or statutory declaration confirms that Mrs T received the notice and accepted the consequences of agreeing to contract out. The lease itself must also contain reference to the contracting out agreement, notice and declaration.
Landlord Terminating a Protected Tenancy
The Landlord may by serving a valid section 25 notice on the Tenant terminate the existing lease and (1) propose terms for a new lease or (2) oppose the grant of a new lease.
A Landlord’s notice opposing the grant of a new lease must specify at least one of the grounds of opposition to a lease renewal. The section 25 notice must be in a prescribed form and must be served not less than six months nor more than twelve months before the termination date specified in the notice. The termination date cannot be before the contractual term expiry date.
Briefly, the grounds of opposition are:
a – The premises are in a state of disrepair and the tenant has failed in its lease obligation to repair and maintain the premises.
b – The tenant has persistently delayed in paying rent that has become due.
c – There have been substantial breaches by the tenant of its obligation under the current tenancy.
d – The landlord has offered or is willing to provide or secure the tenant suitable alternative accommodation.
e – The tenancy was created by sub-letting of part of the premises comprised in a headlease and the combined rent a superior landlord could obtain for the underletting of part and the remainder of the headlease is substantially less than the rent achievable on the letting of the whole premises.
f – The landlord intends to demolish or reconstruct the whole or any part of the premises and could not reasonably do so without obtaining possession of the premises.
g – – The landlord intends to occupy the premises for its business or as its residence.
In the event that the Landlord successfully opposes the renewal of a lease based on ‘no fault grounds’, the tenant will be entitled to statutory compensation.
Based on the fictional example, it is unlikely that Mrs L can force Mrs T to vacate the premises or oppose Mrs T’s lease renewal purely to grant a new lease to Mr TP.
Do You Need Legal Advice on Security of Tenure?
The Landlord and Tenant Act 1954 is technical and legal advice is required before entering a tenancy agreement either as landlord or tenant. Landlords and tenants must understand their specific requirements in a lease arrangement and negotiate terms that are ideal for both parties.
At Ashley Wilson Solicitors LLP, we understand this and are here to provide an informed and personalised service to our commercial clients. Our commercial property solicitors have a wealth of experience dealing with security of tenure, commercial leases and contractual terms as they apply to The Landlord and Tenant Act 1954.
So if you need legal advice, guidance or more information on security of tenure or commercial property matters, please contact Jessica Ebhomenye direct dial 020 7802 4805 or by e-mail on email@example.com).