Security of Tenure in Commercial Leases

03.04.2018

What is it?

“Security of Tenure” is a statutory right, under the Landlord and Tenant Act 1954 (“LTA 1954”), for an existing Tenant to renew a Lease and automatically applies to any premises occupied for business use.

What does it do?

If your Lease has the benefit of “security of tenure” then a Landlord will only be entitled to refuse the grant of a new Lease on certain specific grounds and must pay statutory compensation if they are seeking to refuse the new Lease. These are defined in the LTA 1954 as follows:

The Tenant has left the property in poor condition or has otherwise breached a term of the Lease (for example, using the property for purposes other than those permitted by the Landlord)
The Tenant has been persistently late in paying rent
The Landlord can provide suitable alternative accommodation for the Tenant
The Landlord wishes to use the premises for their own business or plans to demolish and rebuild the premises
The Landlord is selling the whole of the premises

The obligation to enter into further Leases with the Tenant, on expiry of the initial Lease, may not be ideal for a commercial Landlord for many reasons. There is however scope to disapply the provisions of the LTA 1954 in respect of Security of Tenure in a procedure known as “Contracting Out”.

Excluding Security of Tenure aka “Contracting Out”

The procedure to be followed, as laid out in the LTA 1954, is very strict and must be followed correctly:

The Landlord must serve a Landlord’s Notice to exclude security of tenure
In response the Tenant must sign a simple Declaration or a Statutory Declaration (depending on the amount of time before the Tenant occupies the premises) confirming that they are in agreement that the Lease will not benefit from Security of Tenure.

What are the effects of “Contracting Out”

Provided the correct procedure is followed, when the term of the Lease expires the Lease will come to an end and the Tenant will not have the statutory right to request a renewal which could have serious effects on a tenant’s continued occupation of their business premises.

If your lease has not been “contracted out” and a tenant has the benefit of security of tenure then a Tenant must remember to follow the statutory procedure to request a new lease, referred to as a “s26 Notice”, which includes serving the proper notice and also ensuring that such notice is served within the statutory time periods. The Landlord may also instigate the process by serving a similar notice referred to as a “s25 Notice”.

How we can help

Regardless of whether you are a Landlord or a Tenant it is important that you are fully advised on the effects of all aspects of commercial leases including but not limited to the effects of the LTA 1954 and security of tenure.

Walker Solicitors have an experienced Commercial Property Team who can offer a range of expert legal advice when it comes to entering into commercial Leases.

For more information, contact Zachary Clayton on 01922 639 080.