Shannon Hartland, a commercial property solicitor based at both our Battersea and Crystal Palace offices, explains protected commercial leases, and outlines what security of tenure means for both the landlord and the tenant.
What is a protected lease?
A commercial lease is protected by the Landlord and Tenant Act 1954 (“the Act”), and the tenant has “security of tenure” unless the landlord and the tenant agreed to exclude this protection.
Protected commercial leases can only be terminated if the landlord is able to rely on a ground of opposition under the Act.
What is security of tenure?
Security of tenure means that the lease will not automatically end on its expiry date but will continue so long as the tenant carries on business at the leased property, unless the landlord or the tenant serves a notice to end it.
When a protected lease ends, the tenant has a right to a new lease on similar terms but at an updated rent, unless the landlord opposes renewal on one of the grounds set out in the Act.
What if a tenant does not have security of tenure?
If the landlord and tenant agree in the lease that the Act will not apply, and the tenant signs a declaration, the lease is not protected, and the tenant must leave when it expires.
Not having a protected lease could affect a tenant’s business plan. A business can be harder to sell without a protected lease if little to no lease term remains.
When would a landlord serve a Section 25 notice?
When a lease has security of tenure, a landlord wishing to change or terminate the lease can issue a Section 25 notice. It can be a “hostile” notice, opposing the renewal of a lease, or a “friendly” notice agreeing to a renewal but setting out new terms.
There are only certain grounds a landlord can rely on for opposing renewal as set out in Section 30(1) of the Act:
- Dilapidated property
- Persistent delay in paying rent
- Substantial breaches of other lease terms
- Landlord can provide suitable alternative accommodation
- Lease created by a sub-letting
- Redevelopment
- Landlord’s own business use
Some grounds are compulsory, meaning that a court must refuse renewal if the landlord proves they apply. Others are discretionary, when the court can consider the tenant’s circumstances even if the ground is proved.
What are the rules about the termination date of a Section 25 notice?
A Section 25 notice must specify a termination date no earlier than when the lease expires and be served 6 to 12 months beforehand. A tenant can challenge a hostile notice by applying to the court for a new lease. If a friendly notice is served, the landlord and tenant can negotiate terms and sign a renewal lease before the termination date.
Tenants lose protection under the Act unless they apply to the Court before the termination date, or the landlord and the tenant agree to allow longer for negotiations.
What is a Section 26 notice?
A tenant can trigger renewal by serving a Section 26 proposing new lease terms. Unless the landlord serves a counter-notice within two months the tenant can apply to the court for a new lease.
Does security of tenure only apply to commercial leases?
Yes. The 1954 Act only applies to tenants occupying premises for business purposes. For residential tenancies the law is different.
Can tenants get compensation if a renewal lease is opposed?
Whether tenants can get compensation depends on which grounds the landlord relies on to oppose renewal. How much compensation due depends on how long they have occupied the property.
If a tenant has been in occupation for less than 14 years they will be entitled to one times the rateable value of the property. If 14 years of more, a tenant is entitled to two times the rateable value.
Tenants may lose compensation by vacating the premises early or winding up their business. So, remember if you are a tenant, to stay in the property until the section 25 notice expires!
Should landlords be concerned?
Landlords should consider their future plans before granting a protected commercial lease. Wanting to sell does not enable a landlord to oppose a renewal lease.
Landlords intending to rely on Section 30(1) grounds to oppose a renewal should ensure they have evidence to support their claim. Just mentioning a ground in the Section 25 notice is not enough; you may have to prove it in court.
Learn more about protected commercial leases
Visit our Commercial Property page here to find out about the services we can offer for your business. For more information on the Landlord and Tenant Act 1954, visit our Lease renewals page.
To speak to one of our friendly, knowledgeable solicitors about your commercial property matter, call us on 020 8768 6869, or complete the contact form below.
About the Author
Shannon Hartland is a commercial property solicitor specialising in sales and purchases, business leases and licenses, and land development. Shannon is based at our offices in Battersea Power Station and Crystal Palace.