In the case of business tenancies, both landlords and tenants need to be aware of security of tenure. Security of tenure is a statutory right, allowing a tenant to renew its tenancy at the end of the contractual term. The provisions governing security of tenure are contained within the LTA 1954.
This guide examines the main implications of security of tenure.
Who is protected?
A tenant of a business lease has a statutory right to a lease renewal at the end of the contractual term, provided that the arrangement satisfies certain criteria.
The main requirements are:
Business use: the property must be used for a business purpose (inapplicable for leases of residential property).
Occupation: the tenant must be in occupation of the property.
A tenancy, exceeding 6 months: the LTA 1954 does not apply to licences or tenancies at will. We recommend seeking our advice to ensure that genuine licences are created and a protected tenancy is not inadvertently created.
What rights does a tenant have?
Tenancies with security of tenure (protected leases) have these advantages:
• A protected lease does not automatically end upon the expiry of the original term. A tenant has a right to remain in occupation of the property until the lease is terminated under the statutory process.
• A tenant has a right to apply for a new lease from the landlord.
Terminating a protected lease
A protected lease can be terminated in one of these ways:
1. The tenant vacates the property on or before the lease expiry date.
2. The tenant gives the landlord at least three months written notice to terminate the lease, on or after the end of the lease term.
3. The landlord serves notice 6-12 months before the first date on which a new lease can commence and specifies at least one ground of opposition.
Tenant’s request for a new lease
The tenant may request a new tenancy from the landlord by serving notice on the landlord not more than 12 months and not less than 6 months before the proposed lease commencement date – this cannot be before the contractual expiry of the current lease. The landlord may agree to negotiate a new lease by doing nothing, or serve a counter notice within two months after service of the tenant’s request, specifying at least one ground of opposition.
Landlord’s opposition to the new lease
The grounds the landlord may rely on include:
• An intention to demolish, reconstruct or occupy the premises itself.
• The tenant’s failure to comply with its repairing obligations, being in persistent rent arrears or substantially breaching other tenant obligations in the existing lease.
• The landlord has offered suitable alternative accommodation.
Compensation may be due to the tenant where, on certain grounds, a lease renewal is opposed. A landlord must act honestly as to the grounds it relies on. Where a landlord seeks to rebuild or occupy the premises itself, it must take steps to show a firm and settled intention to do so.
Excluding security of tenure or “contracting out”
Many landlords want certainty about their use of the property once the lease term expires. When negotiating a lease, the landlord and tenant may agree to exclude the security of tenure provisions of the LTA 1954, meaning that the tenant will have no right to remain in the property at the end of the contractual term. Whether or not to exclude security of tenure can be hotly negotiated and we recommend seeking professional advice before taking action.
If the lease is to be excluded, the correct procedure must be followed. The landlord serves a prescribed form notice on the tenant, stating that the lease will not have security of tenure. The tenant then makes a declaration, acknowledging the exclusion of security of tenure. A note of the declaration must be included within the lease or agreement for lease, if applicable.
The lease then operates under the contractual term agreed between the parties (including any break rights or options to renew).
This is a brief guide to security of tenure and should not be relied upon as specific legal advice. If you require further guidance regarding security of tenure or commercial leases in general, please contact call 01276 686222.
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.
