Anyone investing in commercial (no-domestic) property, from small retail shops, offices and workshops, to large retail and industrial premises, should have a good understanding of this legislation – the Landlord and Tenant Act 1954.
These guidelines are based on English law and are not a definitive interpretation of the law, every case is different and only a court can decide. Other UK jurisdictions are similar but there are important differences, particularly in Scotland. If in doubt seek expert advice.
Part 2 of the Landlord and Tenant Act 1954 gives tenants occupying premises for business purposes the right to renew their lease (to a new tenancy) on broadly similar terms to their existing one.
A business tenancy therefore does not end at the expiry of a fixed-term, nor can a periodic tenancy be determined by an ordinary notice to quit.
If the landlord and tenant cannot agree on new terms when the lease ends, under the Act tenants have a right to apply to Court for a new lease to be granted. This will always apply with two exceptions:
1 Where the landlord and tenant agreed before the original lease was signed that the tenant’s right of renew under the Act was to be excluded, and that the agreement was to be purely contractual. This is achieved by serving a warning notice and having the tenant sign a declaration, usually more than 14 days before the lease is signed.
2 Where the landlord can successfully oppose renewal on certain limited grounds laid down in the Act. The main grounds are where the landlord originally occupied for his own business purposes and wants to return, and where the landlord wants to re-develop, usually as part of a wider scheme. In both cases the landlord needs good evidence of his intentions, must carry them through, and the tenant is entitled to compensation for business disruption.
Commercial (business) leases are purely contractual, that is the lease clauses are negotiated and binding on the parties, up to the point of renewal, at which point the statutory rules are imposed, giving the tenant rights of renewal and the landlord a set of procedures to follow.
The parties can agree to exclude the provisions of the LTA 1954 to the lease by service of notices to each other under which the tenant agrees to give up her rights.
Letting Outside the Act
To exclude a tenancy from the requirements of the Landlord & Tenant Act 1954 Part 2 the landlord must serve a warning notice on the tenant, allowing him at least 14 days to consider it before signing the lease.
The notice must be substantially in the form given in The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 which informs the tenant that the landlord is offering a lease without security of tenure, and explains the rights which the tenant will be giving up if it agrees to a lease on those terms. It also suggests that the tenant should take professional advice before making a decision.
It is important to make sure that the notice is validly served using one of the authorised methods of service or the lease will not be validly contracted out.
Having received the landlord’s warning notice, the tenant must make a simple declaration or statutory declaration, the latter where time is of the essence and the notice was served less than 14 days before the lease is signed. The declaration must be made before the lease is entered into. The form of the declaration is set-out in the above regulations and lawyers generally recommend always using a statutory declaration.
At the End of the Fixed-Term
1 Where the tenancy is contracted out the tenancy can be determined (brought to an end) by the landlord or the tenant correctly serving (according to common law and the lease terms) a notice to quit.
2 Where the tenancy comes under the Act, section 24 sets out the procedure for renewals and termination.
Section 24 LTA 1954
This section states that “a tenancy to which this part of the Act applies shall not come to an end unless terminated in accordance with the other provisions of Section 24”, and adds that the tenant under such a tenancy may apply to the Court for a new tenancy:
1 If the landlord has given notice under Section 25 of the Act to terminate the tenancy; or
2 If the tenant has made a request for a new tenancy in accordance with Section 26 of the Act.”
Breach of Contract
The statutory rules on renewal have no bearing on the landlord’s right to forfeit the lease for breach of covenant in the usual way.
In addition to the methods set out above, commercial leases can also be brought to an end by:
2 Surrender by the tenant and acceptance of surrender by the landlord
3 By the tenant ceasing to be in occupation for business purposes at the end of the lease
Section 25 and 26 Notices
A Section 25 Notice is the landlord’s notice to terminate a business tenancy.
A Section 26 Notice is the tenant’s equivalent of this and includes a request for a new lease.
Both these notices must give between 6 and 12 months’ notice to terminate the current tenancy. These notices cannot expire before the end of the current tenancy.
A landlord’s Section 25 Notice must state whether or not he opposes renewal of the lease. If he opposes, the notice must specify the grounds (as stated in the Act) upon which the landlord intends to rely. If not opposed, the notice must set out prosed terms on which the lease is to be renewed.
A tenant’s Section 26 Notice requests a new tenancy and must propose new terms for the renewal.
Where a Section 26 notice is served on the landlord he must serve a counter-notice within two months saying whether or not he intends to oppose the renewal. If the landlord fails to serve a counter notice, he loses his right to oppose the renewal but can still object to the renewal terms.
Where one party has served a notice first, either s25 or s26, the other party cannot then respond by serving their own notice.
Tenant Ending the Tenancy – Section 27 LTA 1954
In the case of a fixed term lease the tenant can end the tenancy by serving three months written notice on the landlord under Section 27. A section 27 notice cannot expire before the contractual expiry date and if this date has already passed when a s27 notice is served, the lease will expire after three months written notice.
Terms of a New Tenancy
Lease terms including the new rent and length of should be agreed by the parties or can be fixed by the court. The court will look to the interests of both parties when agreeing variations to the existing lease and may appoint their own independent expert to adjudicate. Various assumptions and disregards are set out in the Act.
It is always best to maintain good relations between landlord and tenant by attempting to reach an amicable settlement on termination or renewal, and thereby avoid the expense of protracted arguments, professional fees and litigation.
Negotiations surrounding the provisions of the Landlord and Tenant Act 1954 Part 2 pertaining to business tenancies can become complex and expensive when litigation is involved. It is recommended that landlords and tenants consult with appropriate professionals, chartered surveyors and property specialist solicitors for advice.
Either party can make an application to court to determine an interim rent during the period when negotiations on renewal are taking place.
For More Information and Notice Templates see:
Landlord and Tenant Act 1954 www.legislation.gov.uk/ukpga/Eliz2/2-3/56/contents
Landlord and Tenant Act 1954 www.landlordzone.co.uk/information/landlord-and-tenant-act-1954
What is a Section 25 notice? www.landlordzone.co.uk/information/what-is-a-section-25-notice
What is a Section 26 Notice? www.landlordzone.co.uk/information/what-is-a-section-26-notice-2
The Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 – www.legislation.gov.uk/uksi/2004/1005/made
LandlordZONE® Document Downloads – www.landlordzone.co.uk/documents
By Tom Entwistle, LandlordZONE®
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©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.