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Landlord and Tenant Act 1954

Commercial property street scene

The Landlord and Tenant Act 1954 Part II and contracting out

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 has set the legal framework for letting commercial property in the UK for 70 years..

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 the rules. Other UK jurisdictions are similar but there are important differences, particularly in Scotland. If in doubt seek expert advice. Always seek professional advice before making on not making important decisions.

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 tenant's occupation therefore does not necessarily end at the expiry of a fixed-term, nor can a periodic tenancy be determined (ended) by an ordinary notice to quit. If the landlord and tenant cannot agree on new terms when the lease ends (lease renewal), under the Act, tenants have the right to apply to the Court for a new lease on similar terms to the original, to be granted.

This will always apply with a couple of exceptions:

(1) Where the landlord and tenant agreed before the original lease was signed that the tenant's right of renewal under the Act was to be excluded, and that the agreement was to be purely contractual. This outcome is achieved by serving a warning notice and having the tenant sign a declaration, a minimum of 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 its own business purposes and wants to return, and where the landlord wants to re-develop, usually as part of a wider development 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 to either renew or not.

The parties can agree to exclude the provisions of the LTA 1954 Part II to the lease by service of notices to each other under which the tenant agrees to give up its rights.

Letting outside the Act

To exclude a tenancy from the requirements of the Landlord & Tenant Act 1954 Part II 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 II (Notices) Regulations 2004  which informs the tenant that the landlord is offering a lease without security of tenure. It explains the rights the tenant will be giving up if it agrees to a lease on those terms. The notice 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.

The tenant's declaration

Having received the landlord's notice, the tenant must make a simple declaration or a 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.

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 it adds that the tenant under such a tenancy may apply to the Court for a new tenancy:

(a) If the landlord has given notice under Section 25 of the Act to terminate the tenancy; or

(b) 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:

(1) Forfeiture

(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 be given between 6 and 12 months' prior to the end of the lease term.

These notices cannot expire before the end of the current tenancy. A landlord's Section 25 Notice must state whether or not it opposes renewal of the lease. If it 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 it must serve a counter-notice within two months saying whether or not it intends to oppose the renewal.

If the landlord fails to serve a counter notice, it loses its right to oppose the renewal, but can it 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 term, should be agreed by the parties or failing this, 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 its own independent expert to adjudicate. Various assumptions and disregards are set out in the Act.

Negotiations

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 II 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.

Interim Rent

Either party can make an application to court to determine an interim rent during the period when negotiations on renewal are taking place and when the tenant is holding over.  

For More Information and Notice Templates see: Landlord and Tenant Act 1954

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