Commercial Lease – What is Security of Tenure?
This article about Security of Tenure is the first in Herrington Carmichael’s series of articles explaining the importance and impact of specific clauses in commercial leases.
What is Security of Tenure?
Security of Tenure is a statutory right granted to tenants of commercial leases, providing the tenant with an automatic right to renew their lease when this contractual term comes to an end.
The right is granted by Part II of the Landlord and Tenant Act 1954.
What happens at the end of the contractual term?
When the contractual term of the lease comes to an end, the tenant has 3 options:
- do nothing and remain in the property, which would mean the terms of the existing lease continue and the tenant continues to pay the same rent. This is known as ‘holding over’
- serve a section 26 notice on the landlord, requesting a new lease
- vacate the property and return the keys to the landlord
Serving a Section 26 notice
By serving a section 26 notice, the tenant requests a new business tenancy from the landlord.
To be valid, the notice must:
- be addressed to, and served on, the competent landlord
- be served by the tenant
- be validly served
- be served not more than 12 months and not less than six months before the commencement date of the new business tenancy. The date must be set out in the notice, and it is important for the tenant to ensure that the commencement date is not before the expiry of the existing lease
- be in the prescribed form
- set out the proposed terms of the new lease
If the landlord is happy to grant a new lease to the tenant on the terms set out, then the landlord can accept the notice and grant the new lease. If the landlord is not happy with the proposed new terms, then the landlord can negotiate these with the tenant and if an agreement cannot be reached either the landlord or tenant can make an application to the court to settle the outstanding terms.
If the landlord wishes to oppose the grant of a new tenancy, then the landlord must serve a counter notice within two months of the section 26 notice. In order to be able to oppose a grant of a new tenancy, the landlord must have a specific ground to rely on and the various grants are set out in section 30(1) of the Landlord and Tenant Act 1954. For example, the Landlord can oppose the grant of a new tenancy in the event there are arrears of rent, there are breaches of covenant, there is an intention to redevelop or the landlord has an intention to occupy the property etc.
It is important that the landlord complies with the strict deadlines and that an opposition is made in good faith.
Holding over can last indefinitely, but the same rights and obligations of the expired lease, will apply to both parties.
In the event a tenant does not request a new lease and simply ‘holds over’, the landlord can:
- serve a section 25 notice on the tenant or
- serve a notice to quit
A section 25 notice allows the landlord to terminate the existing lease by proposing terms of a new tenancy. Similar rules as to validity of the notice apply as those for a section 26 notice – i.e. the notice must be served by the competent landlord on the tenant(s), it must be in the prescribed form, must be served not more than 12 months, nor less than six months before the termination date set out in the notice.
If the landlord and tenant are unable to agree terms of the new lease, either party can make an application to the court for the terms to be ordered.
What is best for me?
It is important that both the landlord and tenant knows about security of tenure and the implications of for them.
A landlord will want to retain control over their property and to, ensure that, at the end of the contractual term, the tenant does not have a statutory right to remain in the property. Any lease renewal would then be strictly down to negotiation between the two parties and failure to come to an agreement would mean the tenant would have to vacate the property at the end of the term.
It would be beneficial for a tenant to ensure that the lease has not been ‘contracted out’ so that it benefits from security of tenure. With security of tenure a tenant would then have a right to remain in the property at the end of the term and could not be forced to vacate the property. The Tenant will also have a right to a renewal lease unless the landlord can provide a ground for opposing a new lease.
This article provides general information and guidance in connection with Security of Tenure. If you would like to discuss this further please contact a member of the Real Estate team.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.