Business tenancies Flashcards
What is a tenant with security of tenure (SOT) able to do?
Continue to occupy the premises at the end of contractual term
What are the benefits of SOT for tenant?
- Can invest in premises long term
- Reap benefits of goodwill from location
- Do not have to worry about considerable upheaval of moving out
What are the benefits of SOT for landlord?
- Premises more appealing to prospective tenants
- Tenant will treat premises as their own (on top of obligations)
- Beneficial in rent review as market rent may be higher for a lease enjoying security of tenure
What are the only arrangements that can benefit from SOT?
A tenancy
- Fixed term (exclusive possession, proprietary interest, binds successors in title to landlord)
- Periodic tenancy (exclusive possession, proprietary interests, binds successors in title to landlord)
How long does a fixed term tenancy have to be to benefit from SOT?
Over 6 months
What cannot benefit from SOT?
- License (personal permission to be on land; not proprietary interest)
- Tenancy at will (similar to licence; but either party can end at any time)
What happens if tenant leaves premises vacant?
It is not entitled to claim SOT
Must be occupied by tenant
What happens if tenant underlets whole or part of premises re occupation requirement?
It cannot be in occupation and will lose SOT over whole or part of premises accordingly
Example: a tenant has an office lease of floors 2 and 3 of a building. It underlets floor 3 for a term ending one day before its own. At the end of the contractual term, the tenant has security of tenure for floor 2 but not 3.
What must be the purpose of the tenancy to qualify for SOT?
For the purpose of a business - widely construed
Inc. charity shop, tennis club for members, residential use that furthers the tenant’s business (e.g. part of lease for shop used for residential purposes)
What tenancies are specifically excluded from SOT?
- Agricultural tenancies
- Mining leases
- Service tenancies (leases granted as part of tenant’s employment)
- Fixed term tenancies of 6 months or less (unless tenant has been in occupation for 12 months or more via successive tenancies/renewed)
Example: a shopping centre employs a maintenance person and lets to them a room to store tools and materials for as long as they need it for their employment. This tenancy would not have security of tenure
Will a fixed term tenancy of 6 months or less always be exclued?
Not if the tenancy is renewable beyond six months / has been in occupation for longer via successive tenancies
Summary - to what does security of tenure apply?
4
- Tenancy (fixed term over 6 months / periodic tenancy)
- Occupied by tenant
- For business purposes
- Not excluded (mining, agriculture, service tenancies, 6 months or less fixed term)
Can all types of leases contract out from SOT provisions?
Only fixed term leases can be contracted out;cannot contract out of periodic tenancy
What tenancies will be commonly contracted out?
- Short term leases (5 years or less)
- Underleases (usually required by tenant’s lease)
What is the two-stage procedure for contracting out?
- Landlord must serve a warning notice on tenant in a prescribed form
- The tenant provide a declaration in prescribed form to the landlord before completing lease
What does the warning notice contain and when must it be served?
- Contains consequences of contracting out of SOT provisiosn
- Must be served before parties complete the lease
What should the declaration be if lease completion is:
1. At least 14 days from date of warning notice
2. Less than 14 days from date of warning notice
- At least 14 days away = simple signed/ordinary declaration
- Less than 14 days away = must be a statutory declaration (declared before independent solicitor)
How does the lease show that the contracting out has happened?
Contain reference to both notice and declaration
What happens if the procedure is wrongly carried out or not correctly referred to in the lease?
The lease will likely enjoy SOT
Because not contractd out!
What happens at the end of a non-protected tenancy?
Tenant has no right to occupy property beyond the contractual term
If stay = trespassing! Can be recovered
What happens at the end of a protected tenancy?
I.e. what can the tenant do?
The tenancy has a right to stay in occupation - known as ‘holding over’
The landlord cannot evict the tenant
What can a landlord do to bring a protected tenancy to an end?
- Forfeit lease if there has been a breach of tenant’s covenants and lease allows (e.g. rent arrears)
- Serve s25 notice (intention to recover premises or offer renewal lease)
What can a tenant do to bring the protected tenancy to an end?
- Vacate premises at end of contractual term
- Surrender the lease with the landlord’s agreement
- For periodic: serve notice to quit to bring tenancy to an end
- Serve s26 notice (request new tenancy)
- Serve s27 notice (to leave premises after period of holding over)
What does it mean that the different notices - s25, s26, s27 -are mutually exclusive?
You cannot serve a different type of notice if one has already been served!
What is the differnce between a friendly and hostile s25 notice?
- Friendly s25 = landlord willing to renew the lease starting the day after termination and proposes new rent and principal terms
- Hostile s25 = landlord intends to oppose the lease (on certain statutory grounds)
When and how must a s25 notice be served?
No less than 6 months and no more than 12 months before the date of termination in a prescribed form
What is the date of termination and when must it be?
- The day the current tenancy ends
- Must be on or after the date on which the contractual term ends
How can a landlord ensure a tenant pays market rent during the period of holding over? Why is this a limited solution?
- Contain a rent review on the last day before the end of contractual term
- Limited solution because rent stays the same during period of holding over
Example: a protected tenant is paying £20,000 per year. The contractual term expires on 20 March. On 19 March, the rent was reviewed to £22,000. The tenant will pay £22,000 for as long as they hold over. However, until the lease is renewed, there will be no further rent increases.
What are the 6 grounds on which the landlord can oppose renewal of the lease in a hostile s25 notice? Are they compensatory or not?
- Breach of tenant repairing obligation (not comp)
- Persistent delay in paying rent (not comp)
- Other substantial breaches of tenant obligations (not comp)
- Availability of suitable alternative accomodation (not comp)
- Intention to demolish or reconstruct premises or carry out substantial construction (comp)
- Landlord intends to occupy premises (comp)
Can a landlord merely say the ground on which it is relying?
No! Must substantiate (with required evidence)
What evidence is required for the grounds related to breach?
Evidence of serious (and persistent) breach(es)
What evidence is required for the ground of delay in rent?
Length of delay and number of times
What evidence is required for the ground of alternative accomodation?
An offer of suitable alternative accomodation (with regard to tenant’s business and goodwill) to tenant
What evidence is required for the ground of intention to demolish/reconstruct?
Firm and settled intention to redevelop e.g. planning permission/construction contract
What evidence is required for the ground of landlord intending to occupy?
Firm and settled intention by landlord - has owned reversion for at least 5 years before date of termination
If there is more than one ground, should only the strongest be mentioned?
No - include all
What two sets of categories can the grounds be categorised into?
- Mandatory or discretionary
- Compensatory and non-compensatory
What is the difference between a mandatory and discretionary ground?
- Mandatory = court must grant possession to landlord if satisfied he has established
- Discretionary = up to court’s discretion even if landlord shows ground
Which of the grounds are mandatory?
- Availability of suitable alternative accomodation
- Intention to demolish/reconstruct
- Landlord to occupy premises
Basically the ones that tenant cannot counter
Which of the grounds are discretionary?
- Breach
- Persistent delay in rent
What is the difference between a compensatory and non-compensatory ground?
- Compensatory = tenant may be entitled to compensation as no fault of tenant
- Non-compensatory = tenant not entitled to compensation as ground relies on tenant’s fault
All grounds are what you would expect them to be bar maybe alternative accomodation which is non-compensatory!
How is compensation calculated?
Business has occupied premises for…
- Less than 14 years = 1x rateable value
- More than 14 years = 2x rateable value
What is the rateable value based on?
Estimated annual rental value of premises (fixeed by local authority for purpose of calculating business rates due for premises)
Not the same as market rent
What does it mean to surrender the lease?
Tenant gives up leasehold interst to landlord during contractual term
What is the difference between a s26 and s27 notice?
- S26 = renew the lease
- S27 = end the lease after a period of holding over
Why would a tenant want to renew the lease with s26 if they are already entitled to hold over?
- May want certainty of fixed term (e.g. planning to carry out improvements to premises)
- May be stuck on a higher market rent while holding over in a falling market
Example: a protected tenant is holding over. There was a penultimate day rent review that fixed the rent at £80,000. The tenant has been holding over for a year, and the market rent has dropped to £70,000. The tenant will want a renewal lease to take advantage of the lower market rent.
How long must the contractual term have been for the tenant to serve a s26 notice?
More than 1 year - if one year or less tenant cannot start renewal process
Can the landlord use a s25 notice if the contractual term was one year or less?
Yes
What is the minimum and maximum notice period for s26 notice?
Minimum notice of 6 months and maximum of 12 months from the proposed commencement date of renewal lease
How can the landlord respond to a s26 notice and how long do they have to do it?
Can oppose it with a counter-notice on one or more of statutory grounds within 2 months
I.e. notice they will oppose application to court for grant of new tenancy
When must a tenant serve a s27 notice (if they are going to serve one?
Must give 3 months notice from intended termination date
Example: A tenant knows that it will want to remain in the premises two months after the end of the contractual term. The tenant will serve a section 27 notice one month before the end of the lease.
What can the the intended termination date not be sooner than?
The date on which the contractual term ends
Does a tenant who intends to leave the premises at the end of the contractual term need to serve any notice?
No! But is good practice to avoid any doubt
If s27 - 3 months before end of contractual term!
Once a s27 is served, can a tenant serve a s26 or landlord serve s25?
No!! Mutually exclusive!
What is the difference between the date of termination and the proposed commencement date?
- Date of termination will be on or after the date the contractual term ends - used in s25
- Proposed commencement date will be the date on which the proposed renewed tenancy will start - used in s26
Why are we applying to court in any event following notices?
- Either party may be applying to renew the lease (even if landlord opposed!)
- Landlord will be applying to recover possession
What are the deadlines for applying to court for a s25 and 26 notice?
Either party may apply
- S25 = The date of termination specified in the notice
- S26 = The day before the proposed commencement date of new lease (subject to counter-notice)
When can a party apply to court for a s25 and s26 notice?
For S25 - can appy after service
For S26 - can only apply after either:
- Landlord has served a counter-notice; or (if not)
- Two months have elapsed from s26 notice
What happens if the deadline is missed to apply to court?
Will lose right to oppose (s26) /support renewal (s25) but can still argue rent and terms)
What can both the date of termination and proposed commencement date not be before?
The lease expiry date
But can be on!
Where are the proposed principal terms of the renewal lease proposed?
The s25 or s26 notice
What happens if the landlord and tenant cannot agree the terms of the lease between themselves?
Following notice, parties will try to agree terms of lease, but if they can’t….
The court will decide
What can the court grant in terms of terms?
- Term up to 15 years
- Rent will be open market rent
- Other terms determined by court having regard to terms of current tenancy and relevant circumstances
Example: the tenant has served a section 26 notice proposing a 5 year term at a rent of £25,000, terms to be the same as the existing lease, except that an underletting of part is permitted. The landlord agrees with all the proposals except the underletting of part. The court will only make a decision on the contentious issue, ie, the underletting of part. The tenant will need to show why the change is reasonable.
What rent will the tenant pay during the period of holding over/negotiation?
The rent as was last reviewed by the lease
What can either party apply for during the period of holding over/negotiation?
Interim rent based on open market
Is the interim rent downwards only or upwards only?
Is not upwards only (unlike rent review) and may be lower than last reviewed rent!
When is the interim rent payable from?
The earliest date…
- of termination that could have been specified in s25 notice
- that could have been specified as the proposed commencement date in s26 notice
Example: (imagine past expiry of contract) a tenant who is holding over serves a section 26 notice with a proposed commencement date in 12 months’ time. If the landlord (or the tenant) applies to fix an interim rent, the rent will be payable six months from the date of tenant’s section 26 notice, not 12 months.
Can either party apply to the court for an order to grant a new lease?
Yes (even if landlord opposed renewal with a s25!)
E.g. landlord has served a hostile s25 notice - both landlord and tenant can apply to the court for a renewal lease to be granted at any time before the proposed termination date
What can the tenant do if they are not happy with the terms determined by the court/has changed its mind?
It can ask the court to revoke the court order (who must agree)
How long does the tenant have to ask the court to revoke the court order if they are unhappy with the terms it has given?
14 days
What does the tenant lose if they ask the court to revoke the order?
The right to renew
What can the landlord, who is opposing renewal on statutory grounds (whether by s25 notice or counternotice to s26) apply to the court for?
Termination of existing lease (after holding over)
Order brings existing lease to end = tenant has no right to remain
I.e. applying to court would be the next logical step to effect intention against renewal
If
- Tenant asks court to revoke court order (which they must oblige); or
- Landlord successfully applies to court for order of termination of existing lease
when does the lease end?
Both situations in above cards
3 months and 21 days after date of order
21 days is time allowed for appeal
If the court order is for grant of a new lease, when will the new lease start?
The day after the termination of existing lease
What is the notice period for a s25 notice and s26 notice? What can they both not be before?
- S25 = 6-12 months before the proposed termination date
- S26 = 6-12 months before the proposed term commencement date
BOTH CANNOT BE BEFORE CONTRACTUAL EXPIRY!!!!
But can be on!
What happens after a friendly s25 notice?
Either party can apply to the court for a renewal lease at any time before the proposed termination date (once they have been unable to agree on new terms)
What happens after a hostile s25 notice?
- Landlord can apply to terminate lease
- Tenant (or landlord!) can apply to court for a renewal lease
…at any time before the proposed termination date
What happens after a s26 notice?
- Landlord has 2 months to serve a counter-notice if proposing to oppose renewal on stat grounds (otherwise will lose right to oppose!)
- Either party can apply at any time after 2 months has elapsed or earlier if counter-notice served
…up until day before the proposed commencement date
Does a notice expire on the same day it was served?
Yes e.g. a 6 month notice served on 1 Jan expires on 1 July
What happens if a notice served on last day of the month ends on a month which is shorter?
Will end on the last day of the appropriate month e.g. 6 month notice served on 31 August will end on 28 Feb (in non leap year)
The corresponding date rule!
If today’s date is 1 Jan, and a protected lease ‘from and including 15 July’ expires this year, what date can the tenant specify as the proposed commencement date for the renewal lease?
PCD must fall between 14 July and 1 January inclusive of both dates
- Contractual expiry date of existing lease is 14 July this year (PCD can be no earlier)
- The period of notice for PCD is no less than 6 months and no more than 12 months - as it is 1 Jan, the earliest date is 1 July and latest is 1 January next year
(Put both rules together and you get the above)
What is the competent landlord?
The first in a chain of landlords - starting with immediate landlord to own a reversionary interest which is either freehold or leasehold that will not come to an end in 14 months’ time
Why is the competent landlord relevant to s25 and s26 notice procedures?
They must be conducted between tenant and competent landlord (who may not be the same person as immediate landlord to tenant)
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