Security Of Tenure For Business Tenants

Security Of TenureIf a tenant is in occupation of a business premise when the lease comes to an end, he has the right to renew his lease on broadly similar terms to the existing lease.   So if he has a 12 year lease, he can ask for another 12 year lease and the same will happen when that 12 year lease comes to an end ad infinitum.

These rights come from the Landlord and Tenant Act 1954 and most business tenants find these rights very confusing.

No earlier than 12 months before the contractual term of the lease expires, either the Landlord or the Tenant can serve a notice on each other trying to establish the position where a Tenant has a right to renew his lease.

The notice a Landlord serves is called a Section 25 notice and in it the landlord has to say whether he would or would not oppose the renewal of the lease.  If he says he would not oppose it, he has to set out basic details of the new tenancy ie. Rent, term and any other special terms.   The Landlord is allowed to propose minor updating of the lease to take into account changes in the law but it is supposed to be the same terms other than that.

The Tenant can initiate the process by serving what is known as a Section 26 notice asking the landlord to renew the tenancy.

Rent under the new lease will be open market value and if the renewal process runs over the expiry of the contractual term, the Landlord can apply for an interim review of the rent.

If the landlord serves a notice on the tenant, the tenant is supposed to serve a counter notice in a prescribed form.   Then within 2 months of service of the notice, the tenant has to apply to the court for a new tenancy.  Even if the tenant is not intending to go to court because he is negotiating a new lease with the Landlord, he is best to protect his rights to renew by applying to the court for a new tenancy just in case the time limit expires and he loses his security of tenure rights.

Security Of Tenure

Can a landlord oppose the renewal of a lease and on what grounds?   If the tenant is in breach of his lease, that would be a ground for opposing the renewal but we are talking persistent and substantial breaches not minor breaches of the lease.

If the landlord wants to occupy the premises himself he can oppose the renewal or if he has a firm and settled intention to redevelop or demolish the premises.  To prove this intention, it would be probably necessary for a landlord to have made a planning application or drawn up plans and had advanced discussions with the planners.  The intention must be present when he serves the Section 25 notice and not later.  In these 2 scenarios the Landlord must pay compensation to the Tenant by reference to the rateable value of the premises.  Twice rateable value if the tenant has been there for more than 5 continuous years, once otherwise.   So it is not masses of money but it goes some way to contributing to the tenant’s loss.

It is possible for the landlord and tenant to “contract out” of the security of tenure provisions of the 1954 Act.  The landlord serves a notice and the tenant makes a statutory declaration in front of a solicitor stating that he understands that he is giving his valuable rights of security but accepts this.   So a tenant should only really do this if he is taking a very short term lease or the lease is at a very low rent.  Otherwise, a tenant would be very ill-advised to give up his security of tenure rights.   Imagine you have built up a substantial goodwill in your business and it is predominantly because of the location of your business premises (Selfridges in Oxford Street or The Ivy Restaurant as extreme examples).  If you lose your right to renew, your goodwill could be severely damaged by having to move to a less favourable location.

There are strict time limits and prescribed forms so please consult a solicitor as soon as possible on the process to avoid losing your rights under the Act or if you are a landlord to ensure that you do not end up giving rights to a tenant where you did not intend to give rights.

One Response to “Security Of Tenure For Business Tenants”

  • Jason:

    Hi i have a small cafe the lease ran out 20 years ago the landlord never renewed it as he new my farther
    And instead of paying rent we looked after the rest of the buliding now the landlord wants to redvelop the buliding
    What rights do i have

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Dominic Beeton, Solicitor
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