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Did you know?
Despite the end of the agreed term lease, tenants of business premises have the right to remain in occupation of the premises, and the right to apply to the Court (if necessary) for the grant of a new lease.
The Landlord and Tenant Act 1954 (“the Act”) governs the relationship between you and your landlord or tenant, and amongst other things provides for security of tenure for tenants of business premises.
The Act is complex and there are various potential pitfalls for landlords and tenants alike in complying with the strict procedures involved in its operation. The following is a broad guide to the key issues for landlords and tenants to bear in mind when their lease is nearing an end.
Can the Act be avoided?
Yes, the ‘right of a tenant to remain’ which is provided for by the Act can be excluded, but, only by express agreement.
Tenants must, however, think very carefully before agreeing to any provision which purports to exclude the protection afforded by the Act. This will only be appropriate in limited circumstances (for instance, where the landlord intends to redevelop the property or the lease is only for a very short term).
How do I terminate?
The most common means of terminating a protected business tenancy (even one that has extended beyond its fixed term) are:
(1) Notice by the tenant (a “Section 27 Notice”)
If a tenant wants to ‘leave’ he may give notice to the landlord, at least 3 months before the date on which the tenancy is due to expire.
If the term of the lease has already expired but the tenancy is continuing then the tenant can terminate the tenancy by giving at least 3 months’ written notice.
NOTE: A tenant serving notice under section 27 will lose any legal right to remain in occupation after the expiry of its notice.
(2) Notice by the landlord (a “Section 25 notice”)
If a landlord wants the tenant to leave (or otherwise improve the terms of the lease if the tenant is to stay) he can serve a Section 25 notice on the tenant to commence the process of either granting a new lease to the tenant, or forcing the tenant to vacate the premises.
The Notice must state the date on which the landlord proposes that the lease be brought to an end. That date:
• Cannot be earlier than the date on which the term of the lease expires, nor earlier than 6 months from the dates of the notice; and
• Cannot be later than 12 months from the date of the notice
Additionally, a Section 25 notice:
• Must be in a prescribed form;
• Cannot validly be served before the last year of the existing lease;
• Cannot be given if the tenant has already served a notice under section 26 of the Act (see further below);
• Must state whether the landlord is opposed to the grant of a new lease, and if so on what grounds.
Only stipulated grounds for objection can be cited under the Act and the ground(s) on which the landlord seeks to rely must be set out in the notice. The grounds are:
a) The tenant has failed to comply with repair and maintenance obligations;
b) Persistent delay by the tenant in paying rent
c) The tenant’s substantial breach of its obligations under the lease;
d) The landlord has offered the tenant alternative premises;
e) The current lease is a sub-lease of part, comprised in a superior tenancy, and the landlord owns the reversion expectant on termination of that superior tenancy, and could obtain a higher rent if the property was let as a whole;
f) The landlord intends to demolish, reconstruct or carry out substantial construction works at the property; or
g) The landlord wishes to occupy the property itself
• Must (where applicable) set out the terms on which the landlord would be prepared to renew the lease
What if new terms cannot be agreed?
Where terms cannot be agreed, the Court will determine what is fair and reasonable having listened to the arguments of the landlord and the tenant and/or their appointed experts. This process can take a considerable period of time and, if expert evidence is required, can involve substantial cost.
How, as tenant, do I request a new lease?
A tenant may instigate the process for entering into a new lease for the same premises by serving a notice under Section 26 of the Act (section 26 notice). This involves the tenant terminating the existing lease (and must specify the date on which the tenant proposes this occur, not earlier than 6 months after, and not more than 12 months after, the notice) and requesting a new lease.
A Section 26 notice:
• Must be in a prescribed form;
• Cannot be served before the last year of the existing lease;
• Cannot be served if the landlord has already served a section 25 notice;
• Must set out the tenant’s proposals for the terms of a new lease
What if I, as landlord, don’t want the tenant to stay?
Where the tenant serves a Section 26 notice and the landlord does not want the tenant to remain, it must serve a counter-notice within two months citing one or more of the Grounds set out above.
The provisions outlined above are a legal ‘minefield’. There are many issues to consider towards the expiry of a business lease and the consequences of failing to properly follow the provisions of the Act can be serious.
We are experienced in assisting both landlords and tenants on a wide variety of issues. Do not hesitate to contact us if you feel that you or your business could benefit from specialist advice on any aspect of your commercial property affairs.