Tenant’s Commercial Lease Renewal: What does it mean if my lease is protected by the Landlord & Tenant Act 1954?

How do I know if my lease is protected or not?

You should be able to ascertain whether your lease is “inside” or “outside” of the Landlord & Tenant Act 1954 (“the ’54 Act”) Part II security of tenure provisions quite easily from looking at your lease.

You have to “opt out” of them if you don’t want them to apply so, the security of tenure provisions set out in sections 24 to 28 of the ’54 Act will apply to your lease unless you and your landlord agreed otherwise and you followed the correct procedure to do so. In order to have validly “opted out” your landlord had to serve you with a notice stating that sections 24 to 28 of the ’54 Act would not apply to the terms of your lease and a brief explanation of what that means. The form of the notice is prescribed by law so always seek legal advice from a solicitor with experience in these matters to check the validity of the notice. The timing of the notice is also significant. The notice should not be served until the terms of the lease have been agreed. In most cases, therefore, the notice will be served as soon as the form of lease or underlease is agreed and both parties will want to complete as quickly as possible, so you will have had to swear a statutory declaration in the presence of a solicitor. So, if you followed this procedure it is very likely that your lease contains a clause confirming this procedure (including the dates of the notice and the statutory declaration) and that the ’54 Act provisions are excluded.

If the lease does not contain a clause to this effect, or you did not follow this procedure, then your lease is not properly excluded from the security of tenure provisions of the ’54 Act.

What does “security of tenure” mean?

Your lease will state that it lasts for a specific amount of time or until a specific date; the “Term”. If your lease is outside of the ’54 Act, when the Term expires you must have vacated the premises. If you do not give up vacant possession of the premises on expiry of the Term, the next day the landlord is entitled to seek possession of the premises whether by peaceable re-entry or by issuing court proceedings.

If you have the benefit of security of tenure, your lease does not automatically end on expiry of the Term. A lese protected by the ’54 Act can only be brought to an end if the statutory procedure for doing so is followed. Unless and until that procedure is followed, the lease term continues and you can stay in occupation of the Premises. If the landlord takes steps to terminate your lease, you also have the right to apply to the Court to remain in possession of the premises and have a new lease granted to you.

Security of tenure is, therefore, very important for certain types of businesses. If your location is important to your business, it is likely to be important to you that your lease has security of tenure. Consider the difference between a café and a call centre. The café’s business is likely to be adversely affected if the café business has to move to new premises every 5 years. The call centre business, on the other hand, is unlikely to be affected if its premises move as its value is not in its location.

Terminating a ’54 Act lease:

• Service of a section 25 notice by the landlord

The landlord can serve notice on the tenant to terminate the lease under section 25 of the ’54 Act. The timing of this notice is key; it cannot be served more than 12 months or less than 6 months before the date on which the landlord intends to end the lease and it cannot be served after the tenant has served a section 26 request (see below).

A section 25 notice served by the landlord can either state that the landlord does not object to a new lease being granted to the current tenant, in which case it sets out the terms that the landlord would be prepared to offer such a new lease on or, it will state that the landlord does object to a new lease being granted. The landlord can only object to a new lease if certain circumstances prescribed in the ’54 Act apply. If you are served with a section 25 notice in which the landlord relies on one of those circumstances to object to granting you a new lease, you should seek legal advice from a solicitor experienced in ’54 Act renewals immediately.

• Service of a section 26 request by the tenant

This is a notice served by the tenant on the landlord, stating the date on which the new tenancy is to come to an end and requesting a new tenancy on the tenant’s proposed terms. Again, timing is key; this request must give not more than 12 months’ nor less than 6 months’ notice to terminate the lease but it cannot be served by the tenant more than 12 months before the end of the current lease term or after the landlord has validly served a section 25 notice.

• Service of a section 27 notice to terminate

A tenant can serve notice to bring the lease to an end on the landlord. This notice can be given at least 3 months before the end of the lease term to bring the lease to an end on expiry of the fixed term. If the term has already expired, the tenant can give at least 3 months’ notice to bring the lease to an end on a specified date. This procedure should be used only if the tenant is certain that it does not want to remain in occupation of the premises and does not want to renew the lease.

What happens next?

If a section 25 notice or a section 26 request is served and the landlord and tenant agree to a new lease being granted, they can negotiate and agree the terms of the new lease but they must do so and complete the new lease before the notice or request expires if the tenant is to keep its security of tenure.

If negotiations are not proceeding in a timely fashion, either party can apply to the Court for an order granting a new lease and an interim rent but they must do so before expiry of the notice or request to preserve the tenant’s right of security of tenure.

The parties can, if certain formalities are met, agree to extend the deadline for expiry of the notice or request to avoid incurring the costs of issuing proceedings in order to protect their position. These deadlines and timings are particularly important from the tenant’s perspective as if they are missed, the tenant will lose its security of tenure and with it any leverage it has in lease renewal negotiations. Worst case scenario, the tenant could be forced to vacate the premises without time or opportunity to comply with its other obligations on termination of the lease, such as any reinstatement obligations and dilapidations. In short, missing a deadline when following these procedures could prove to be a very expensive mistake indeed on the part of the tenant.

A new lease ordered by the Court

If the parties cannot agree the terms of a new lease whether in negotiations before or after court proceedings have been issued, then the Court has the power to intervene and determine the terms of the new lease for them. But what, exactly, can the court order?

The starting point will always be that the terms of the new lease should largely follow the terms of the existing lease. Either party may suggest a departure from the existing lease provisions but they will have to persuade the Court that the proposed change is reasonable in the circumstances; this is likely to succeed, for example, in respect of provisions to modernise an out of date lease.

• The length of the new lease term

The parties can agree a new lease of any duration, but the Court cannot order the grant of a new lease for a term longer than 15 years. If the parties do not agree on this point, the Court is more likely to be persuaded by the tenant’s request as to duration.

• Rent

Again, the parties can agree any rent they like, but if they cannot, then the Court will decide the Rent with reference to the market rent subject to a set of standard assumptions and disregards. This will need to be supported by expert rent valuation evidence. We can refer you to an expert valuer for this purpose, if you do not already have an agent.

Conclusion:

The provisions of the ’54 Act are prescriptive and highly technical. This note is intended to offer only general guidance on the many issues that a tenant might face. As you will have noted, perhaps the most significant potential pitfall is that of timing.

You must also remember, however, that if you intend to serve a request or notice pursuant to the ’54 Act, or if you are served with a notice by your landlord, it must be done in strict compliance with the statutory requirements in the ’54 Act and with any service provisions set out in the lease.

There is a lot to consider and the unwitting or unwary tenant can easily make very costly mistakes. There is, quite simply, no substitute for seeking early advice and assistance from a solicitor with the requisite experience and expertise in this field which can be a bit of a minefield!

At Colemans, between our Commercial Property and Litigation departments we have the winning combination of experience and expertise that you need to successfully navigate the situation. To find out more, or to find out how these general principles apply in your particular situation, please contact a member of our team. To negotiate and agree new lease terms with your landlord, contact Dara Galic on 01628 631051 or by email to dara.galic@colemans.co.uk. If you need to serve a request or notice pursuant to the ’54 Act, or if you have been served with one, contact Kate Williams on 01628 631051 or by email to kate.williams@colemans.co.uk.

Categorised in: Civil Litigation

This post was written by Colemans Solicitors LLP