When a business (commercial) lease (England & Wales) comes to an end, under the statutory rules laid down by the Landlord and Tenant Act 1954 Part 2, the business tenant has security of tenure – most tenants have an automatic right to renew on similar terms to the original lease.
There are a few obscure exceptions but the main exception to this is where the tenancy is “contracted out” of the Act – where a tenant agreed before the lease was signed that they would not be bound by the statutory rules.
The landlord has the right to refuse renewal, but only on very limited grounds, namely: if the tenant is in serious breach of its lease obligations (e.g. rent arrears), the landlord wishes to use the premises for their own business or to redevelop.
Where the tenant is refused renewal by the courts on some grounds and the landlord takes the premises back, the tenant usually has a right to compensation using a formula laid down in the Act.
These guidelines apply primarily to England and Wales. Other regions and jurisdictions are often similar but there may be important differences. This is not a definitive interpretation of the law, every case is different and only a court can decide. If in doubt seek expert advice.
The process is started off either by the landlord serving a notice with strict time constraints under section 25 of the Act (either proposing a new tenancy with proposed new terms, or opposing renewal) or the tenant serving a request for a new tenancy under section 26 of the Act.
There are prescribed forms for this in the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004. It is of course important to ensure these notices are valid in every respect and served correctly meeting the time deadlines: valid dates, names and addresses, entitlements etc.
The Civil Procedure Rules (CPR), which came into force on 1 April 2013, are designed to avoid costly legal disputes between landlords and tenants where a tenancy renewal is opposed or the disagreements on renewal terms.
Lawyers will in the first instance try to get agreement and settlement or use independent arbitration before resorting to the courts, but in any event opposed and defended lease renewal disputes can be expensive.
Landlords of commercial premises should be aware that once let, a commercial property may not easily be reverted and so it is very important to sign tenants up to a good strong lease agreement – a cheap off-the-shelf lease is unlikely to be sufficient in most cases.
However, reversion is not impossible, as the following case shows:
In the case of Youssefi v Mussellwhite 2014, the judge said that a tenant’s “persistent and wilful refusal” to comply with the terms of the lease would be good enough reason for the landlord to oppose a request for renewal under the Act.
The tenant had a lease of house, shop and premises covered by the Landlord and Tenant Act 1954.
The tenant served a request for a new lease but the landlord opposed it under section 30(1)(c) of the Act on the ground that the tenant (1) was in breach of her repairing obligations, (2) was persistently late in paying rent, (3) repeatedly refused to allow the landlord access to inspect the premises, and (4) had failed to use the premises as per the lease user clause, that is as a shop.
After considering all these points both individually and collectively the court had to consider if it was fair if this tenant, given her past behaviour, were to be “foisted” on the landlord for a new term.
Although the court found some of the points to be not serious enough others were considered serious, mainly the breaches of the access covenant and the user clause.
Finally, the judge considered that it would be unfair and prejudicial to expect the landlord to continue with the present tenant due to her past behaviour. The lease had contained a positive obligation to use the premises for a stipulated purpose.
Covenants to keep the property in repair and to use the property for a specific person are there to preserve the value of the reversion of the landlord’s and adjoining property, so the tenant’s actions (or inaction in this case) ware deemed prejudicial to the landlord’s interests and the breach had been substantial.
This case is good news for landlords with difficult commercial (business) tenants; landlords can use evidence of a tenant’s bad behaviour in support of their case coupled with other substantial breaches of the lease as legitimate grounds to oppose a request for a new tenancy.
The case may also serve as a warning and a useful bargaining counter for landlords to use when insisting on appropriate behaviour during the lease term.
By Tom Entwistle, LandlordZONE®
2 October 2014
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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.