Generally speaking, the Landlord and Tenant Act 1954 provides ‘security of tenure’ to business tenants. But what does this mean? Under the Act, commercial tenants – if the lease is “inside the Act” – have the right to renew the lease when it ends and the ability to remain in occupation at the property at the end of the contractual term of the lease on the same terms as the old lease. However, this will be subject to reasonable modernisation and at a new market rent. The Act is in place to ensure that commercial tenants cannot, provided they abide by the terms of their lease, be evicted without the landlord following stringent requirements of the Act.
WHEN DOES THE LANDLORD AND TENANT ACT 1954 APPLY?
The Act applies automatically to leases granted to tenants of business premises (not residential) and the property must be occupied by virtue of a lease (as opposed to a licence). There are a few exceptions where the Act will not apply, the most common of which include:
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·Tenancies where the term of the lease is for 6 months or less (unless the lease allows for an extension)
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Where the tenant’s total period of occupation does not exceed 12 months.
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Agricultural tenancies
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Licences
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Tenancies at Will
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Where the parties have agreed that the Act will not apply (known as “contracting out”)
EXCLUDING BUSINESS TENANCIES FROM THE ACT
It is possible to exclude leases from the protection provided by the Act. In fact, it is common for new office leases to be granted outside of the Act. Although for this to apply, there are a strict set of requirements. Landlords must give the tenant notice confirming that the proposed lease will not be protected by the Act and the tenant must acknowledge their agreement to exclude the Act before the new lease is completed. If the landlord’s notice is served less than 14 days before the lease is granted, the tenant’s agreement must be in the form of a statutory declaration. The Act requires the notice and tenant’s confirmation to be in a prescribed form. Finally, the lease must contain a statement that the relevant sections of the Act have been excluded.
WHAT ARE THE GROUNDS FOR REGAINING POSSESSION?
Where the Act has not been excluded, the landlord can only object to a lease renewal and regain possession of the property on certain specified grounds. Some of the most important of these include:
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If the landlord requires the property to occupy himself, or for development purposes;
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If the tenant has a history of non-payment of rent, or not complying with the lease obligations;
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If the premises have been split up by subletting into several units and the whole premises would command a higher rent if let together under one lease.
In order to gain possession at the end of the lease term, the landlord must serve the tenant with a Section 25 Notice followed by a local county court application.
HOW DOES A LANDLORD OR TENANT REQUEST A LEASE RENEWAL?
If it is the landlord who wishes to renew the lease with the existing tenant, but on new terms, the landlord must serve a Section 25 Notice, followed by a court application.
If the lease is approaching the end of its term, and a tenant wishes to commence renewal negotiations then they can serve what is called a “section 26 notice” requesting a new tenancy.
It is important to note that if neither party serves a notice prior to the expiry of the fixed term, the Act has the effect of automatically continuing the lease after the end of its term. The lease continues on its existing terms until either the landlord or tenant states that they wish to bring the tenancy to an end or they enter into a new tenancy.
HOW IS A TENANCY ENDED UNDER THE ACT?
To terminate a lease with the security of tenure, the most common methods for bringing an existing, protected business tenancy to an end are:
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notice by the Landlord under section 25 of the Act;
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notice by the Tenant under section 26 of the Act;
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forfeiture (where the tenant has breached the terms of the lease);
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surrender by agreement of both parties;
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three months’ notice from the Tenant under section 27 of the Act on, or after the expiry of the contractual term;
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by the tenant vacating the premises at the end of the contractual term of a lease.
Both section 25 and section 26 notices must give a minimum of six months, and a maximum of twelve months’ notice. Once the Landlord has served a section 25 notice the tenant cannot serve a section 26 notice and visa-versa.
EXPERT LEGAL ADVICE
The Act involves strict rules and time frames that must be followed, and commercial landlords and tenants should always seek legal advice to determine their legal rights or obligations.
We can provide advice in relation to lease renewals, working with you to assess risks, costs and options to determine the right solution for you.
Phillips Lewis Smith is an established London Law Firm, with expertise across the firm covering all commercial law and property law matters. Our specialist commercial property teams and dispute resolution experts can advise on a variety of legal and practical issues impacting both landlords and tenants.
Our office is situated just five minutes away from Charing Cross and Embankment Station, just south of Trafalgar Square. Being situated in the heart of the West End of London, we are easy to reach. Call us on +44 (0)20 7925 2244 or email us at office@plslex.com.