Landlords of commercial premises may consider it necessary to bring the lease to an end or to refuse to renew a lease. This course of action might be for a number of reasons: A tenant for example might not have a statutory right to a lease renewal under the Landlord and Tenant Act 1954, the tenant may be in arrears with rent or has made a serious breach of the contract. The landlord may wish to redevelop the premises or occupy it to run its own business.
This article refers to English law. It is not a definitive interpretation of the law. Every case is different, rules change over time and only a court can decide -a lways seek expert advice before taking action or not.
To terminate a lease when it ends the landlord must serve notice – a section 25 notice – and the notice must specify at least one of the seven “grounds” set out in section 25 of the Act. If the tenant beats the landlord to it and serves notice – a section 26 notice – requesting a new tenancy, the landlord may oppose the request on the basis of the several grounds for possession.
There are in fact seven grounds under the Landlord and Tenant Act 1954 used to end a commercial tenancy, or for opposing a new tenancy:
If the landlord chooses a mandatory ground (F or G for instance) and it provides enough evidence to substantiate the claim, then the court must award possession regardless of the situation of the tenant. Furthermore, under a third ground (D), the court has little discretion not to order possession.
For applications on the other four grounds, the court has to decide whether the tenant should be allowed to stay in occupation, even when the landlord proves his ground is reasonable.
Grounds on which a landlord may object to the renewal of a lease listed in section 30(1) of the Landlord and Tenant Act 1954 (part 2).
Ground A: Breach of repairing covenant, a discretionary ground, so the court decides. Generally the breach must be a serious one, but good evidence of the tenant’s failure to keep the premises in good repair does not necessarily in itself enable the landlord to have the tenant’s renewal application dismissed. The tenant may offer to repair on renewal, or the landlord can show given the state of repair the lease ought not to be renewed.
Ground B: Persistent delay in paying the rent, another discretionary ground. The landlord must show that the tenant, “ought not to be granted a new tenancy” given the persistent failure to pay the rent on time. A court will be looking at whether the tenant can convince it of its ability to pay the rent on time in the future. It is important to note that where a landlord has habitually accepted the late payment of rent and not made it clear to the tenant that it must strictly comply with the lease terms, the landlords claim may fail.
Ground C: Breaches of other obligations, another discretionary ground. The onus is on the landlord to show to the court that the breaches the tenant has made are such that the tenant, “ought” not be granted a new tenancy. Again, any evidence that the landlrod Any waiver of, or acquiescence in, a breach by the landlord will influence the court against the refusing of a new tenancy on the grounds of the breach.
Ground D: Availability of alternative accommodation, here it is mandatory and the Court has little or no discretion. The landlord must show that it can offer suitable alternative premises to the tenant on lease terms that are reasonable and similar. The tenant has limited time to decide to take up a reasonable offer, otherwise it is out.
Ground E: A Sub-tenant – possession is required for letting, or disposing of the whole of the property, another discretionary ground. The landlord must show that the tenancy was formed by sub-letting part of the superior tenancy and that the superior landlord is able to let the whole premises for more than the individual parts. It depends on the superior tenancy ending by the date the applicant’s tenancy ends.
Ground F: Landlord intends to demolish or reconstruct, a mandatory ground. The landlord must show it intends to demolish, reconstruct or otherwise develop the premises which could not reasonably be performed without obtaining possession of the premises. The landlord must have plans and evidence of genuine intention with penalties if it fails to perform. The court is more likely to approve if the premises are in a dilapidated state.
Ground G: Landlord intends to occupy the premises himself, a mandatory ground. The landlord must show that it intends to occupy the premises for the purposes of its own business, or as its residence. The premises must have been owned by the landlord for at least five years prior to the ending of the current tenancy.
Compensation is due to a refused renewal tenant under the Landlord and Tenant Act 1954 set-out in a formulae in the Act for grounds E, F and G.
Landlords should have detailed information available from the start of the possession process including: a schedule of dilapidations, rent payment history, a schedule of any covenants the tenant has breached, full details of alternative accommodation, detailed calculations of the market rent attainable on the whole or parts, a full description of the works that the landlord intends to undertake, details of planning and building regulations consents, a description of any business the landlord intends to undertake, all as appropriate to the grounds selected.
When the tenant is a licensee or if the lease is contracted-out of the Landlord and Tenant Act 1954 (Part 2), serving notice to quit and bringing possession proceedings should be pretty straightforward.
However, complications can arise with protected tenants, i.e., when the lease is under the Act.
Tenants then have a right to renew their tenancy under the Act on similar terms. In these circumstances, in addition to any contractual break notice, the landlord must also serve a statutory section 25 notice. This is effectively a six-month statutory notice period to quit the premises.
Under procedures introduced in 2004, the landlord is able to issue a possession claim without waiting for the six months’ notice to expire. However, for this to be successful, the court will require detailed evidence as above in a very short time frame. In cases were the landlord is slow to act and unprepared, the tenant can take advantage and obtain a new tenancy.
There is a trap that can catch the landlord out. Where the tenant gets in first and serves a section 26 notice the landlord would need to serve a counter-notice to the tenant’s section 26 notice within two months. Failure to do so would prevent the landlord from bringing a claim for possession.
In practice, the procedure should be straightforward providing the landlord is on top of things with all the information to hand in a timely manner.