Business Tenancies

Question 1

To what does security of tenure apply?

Answer 1

Applies to:
- any tenancy - (fixed and periodic tenancies)

• occupied by the tenant: can’t underlet, or if leaves vacant cannot benefit, or if part is vacant can’t claim for the vacant part
• occupied for the purposes of a business: ‘trade, profession, or employment”
  Have been held to be:
• charity shop
• tennis club for members only
• residential use that furthers the tenant’s business
  NOT:
• sunday school sessions provided free of charge
• tenant who was taking on lodgers

Question 2

Types of tenancies which can and cannot benefit from security of tenure

Answer 2

Can benefit:
- A fixed term tenancy
- Periodic tenancy

Cannot:
- licence
- tenancy at will

Question 3

Tenancies excluded from security of tenure

Answer 3

• Agricultural tenancies
• Mining leases
• Service tenancies (lease granted as part of a tenant’s employment)
• Fixed term tenancies of six months or less (but can become protected if the tenant has been in occupation for twelve months or more, whether through successive tenancies or if the tenancy is renewable beyond six months

Question 4

What is contracting out?

Answer 4

Parties can agree to exclude a fixed term lease from security of tenure provisions.

Note: periodic tenancy cannot be contracted out

Tenancies normally contracted out:
- short term leases (5 years or less)
- underleases (usually required by the tenant’s lease)

Question 5

What is the procedure for contracting out?

Answer 5

Two stage procedure:

1. Landlord must serve a warning notice on the tenant in a prescribed form BEFORE parties complete the lease.
2. Tenant must provide a declaration.

> If completion is at least 14 days from date of warning notice this can be a signed declaration
If completion is less than 14 days away then the tenant must provide a statutory declaration (declared before an independent solicitor)

Lease must contain reference to both the notice and declaration of contracting out.

If not carried out or not correctly referred to - the lease will have security of tenure.

Question 6

What happens at the end of the contractual term for a non-protected tenancy?

Answer 6

For a non-protected tenancy the tenant has no right to occupy beyond the contractual term. If the landlord has notified the tenant that it requires possession at the end of contractual term, and tenant continues to occupy, the landlord may treat them as a trespasser and recover possession.

Question 7

What happens at the end of the contractual term for a protected tenancy?

Answer 7

For a protected tenancy, the tenant has the right to stay in occupation.

This is known as holding over.

The landlord cannot evict the tenant and the tenant’s occupation can only be brought to an end by certain methods allowed by the Landlord and Tenant Act 1954.

Question 8

How can the landlord bring a protected tenancy to an end?

Answer 8

• forfeit the lease if there has been a breach of the tenant’s covenants and the lease allows this
• serve a section 25 notice which may indicate an intention to recover the premises or offer a renewal lease

Question 9

How can a tenant bring a protected tenancy to an end?

Answer 9

Tenant’s options:
- vacate the premises at the end of the contractual term
- surrender the lease with the landlord’s agreement
- for a periodic tenancy, serve notice to quit to bring the tenancy to an end
- serve a section 26 notice to request a new tenancy
- serve a section 27 notice to leave the premises

Question 10

Section 25 notice

Answer 10

Landlord’s section 25 notice states when the current tenancy will end (date of termination). Must be on or after the date on which the contractual term ends.

Must be served no less than 6 months and no more than 12 months before the date of termination.

Question 11

Friendly vs hostile section 25 notice

Answer 11

Friendly: s25 notice indicates that the landlord is willing to renew the lease to start the day after termination. It will propose the rent to be paid and principal terms of the new tenancy

Hostile: s25 notice indicates that the landlord intends to oppose renewal of the lease. The landlord can only do this on certain statutory grounds and must specify on which ground or grounds the landlord intends to rely.

Question 12

Why would a landlord want to serve a friendly s25 notice?

Answer 12

• peace of mind - the landlord wants the tenant to be tied to a further terms and therefore the landlord’s rental income will be guaranteed
• In a rising market, to enable a market rent to be fixed for the renewal tenancy.

Question 13

Grounds for Hostile s25 notice

Answer 13

There are 7 grounds, and the landlord must be able to substantiate the grounds on which it is relying.

Grounds can either be mandatory or discretionary.

Grounds can also be compensatory or non-compensatory.

If there is more than one ground you should include them all.

Question 14

Mandatory v Discretionary grounds

Answer 14

Grounds can either be mandatory or discretionary:
> Mandatory - if the landlord establishes the ground, the court must grant possession to the landlord
> Discretionary - even if the landlord establishes the ground, it is down to the court’s discretion

Question 14

Compensatory vs non-compensatory

Answer 14

Grounds can also be compensatory or non-compensatory:

> if the ground relied on is the fault of the tenant (eg breach of covenant) this is non-compensatory.
if the ground is the fault of the landlord this is compensatory (eg landlord needs to carry out work)

Compensation is calculated at:
- 1x the rateable value if the business has occupied the premises for less than 14 years
- 2x the rateable value if the business has occupied the premises for 14 years or more

Rateable value: fixed by the local authority and is based on estimated annual rental value of the premises.

Question 15

The hostile grounds

Answer 15

(a) breach of tenant repairing obligation
- need evidence of serious breach
- discretionary
- non-compensatory

(b) persistent delay in paying rent
- length of delay and number of times
- discretionary
- non-compensatory

(c) other substantial breaches of tenant obligations
- evidence of serious and persistent breaches
- discretionary
- non-compensatory

(d) availability of suitable alternative accommodation
- landlord must have made an offer of suitable alternative accommodation (with regard to the tenant’s business and goodwill) to the tenant
- mandatory
- compensatory

(f) intention to demolish or reconstruct premises or carry out substantial construction
- firm and settled intention to redevelop, possibly planning permission or construction contract
- mandatory
- compensatory

(g) landlord intends to occupy premises
- firm and settled intention by the landlord, has owned reversion of least 5 years before the date of termination
- mandatory
- compensatory

Question 16

Section 26 notice

Answer 16

Served by the tenant on the landlord to request a renewal of the lease.

Requirements:
- must have a lease that originally granted them a contractual term of more than one year (if less only landlord can start renewal process with friendly s25)
- minimum notice period of six months and maximum notice period of twelve months before the proposed commencement date of the renewal lease

Landlord has two months from section 26 notice to serve a counter notice (opposing the grant of a renewal lease), but can only do so if relying on one or more statutory grounds (same as for hostile s25 notice)

Question 17

Section 27 notice

Answer 17

A section 27 notice must give three months of the intended termination date which must be no earlier than the date which the contract ends.

Technically do not need to serve one if planning to leave at end of contractual term but it is good practice.

Once a s27 notice is served, tenant cannot serve a s26 notice nor can the landlord serve a s25 notice.

Question 18

Deadlines for applications to the court s25

Answer 18

Section 25: either party may apply to the court at any time after service of a section 25 notice
- the deadline is the date of termination in the notice

Question 19

Deadlines for applications to the court s26

Answer 19

Section 26: either party can apply after the landlord has served a counter notice or if not two months have elapsed from s.26 notice
- deadline for applying to court is the day before the proposed commencement date (can be extended by the parties agreeing in writing)

Question 20

Court deciding terms of the new lease after friendly s25 or 26 notice

Answer 20

If landlord and tenant are unable to agree the terms themselves they will ask the court to decide.

The court can grant a term up to 15 years, the rent will be open market rent and other terms are determined by the court having regard to the terms of the current tenancy and relevant circumstances.

Any changes to the terms of the current tenancy will need to be shown to be reasonable.

Can order a break clause where there was none previously.

Question 21

What is interim rent?

Answer 21

The rent paid during the period of holding over, the tenant will continue to pay rent as it was last reviewed by the lease.

Either party can apply during this period to have the court fix an interim rent - it is not upwards only so may be lower than last reviewed in a falling market.

Rent is payable from the earliest date of termination that could have been specified in the landlord’s section 25 notice or the earliest day that could have been specified as the proposed commencement date in the tenant’s s26 notice.

Question 22

Court orders

Answer 22

1. Order to grant a new lease (even if landlord is opposed). If tenant is not happy with terms or changed its mind it has 14 days to ask the court to revoke the court’s order. If asked the court must agree and the tenant will then have no right to renew.
2. Order for termination of the existing lease.

Both types of orders bring the existing tenancy to an end three months and 21 days after the date of the order. (21 days is the time allowed for appeal)

If the court order is for the grant of a new lease, the lease will start the day after the termination of the existing lease.

Question 23

Section 25 (friendly) summary

Answer 23

• Prescribed form
• Landlord intends to end current lease, but proposes renewal lease
• 6 to 12 months before the proposed termination date (which cannot be before the contractual expiry of the current lease)
• Either party can apply to the court for a renewal lease at any time before the proposed termination date

Question 24

Section 25 (hostile) summary

Answer 24

• prescribed form
• Landlord intends to end current lease and oppose renewal of the lease on statutory grounds
• 6 to 12 months before the proposed termination date (which cannot be before the contractual expiry of the current lease)
• Landlord can apply to terminate the lease, tenant (or landlord) can apply to the court for a renewal lease to be granted any time before the proposed commencement date

Question 25

Section 26 notice summary

Answer 25

• Prescribed form
• Tenant proposes renewal lease
• 6 to 12 months before the proposed term commencement date of the new lease (which cannot be before the contractual expiry date of the current lease)
• Landlord has two months to serve a counter notice if proposing to oppose renewal (stating statutory grounds) or will lose right to oppose.
• Either party can apply to court at any time after two months has elapsed or earlier if counter-notice is served, up until the day before the proposed commencement date.

Question 26

Section 27 summary

Answer 26

No prescribed form

• Tenant gives notice to leave
• Not less than 3 months (which cannot be before the contractual expiry date of the current lease)
• Tenant is entitled to leave at the end of the notice period.

Question 27

Date rules

Answer 27

A notice expires on the same date as the date on which it was delivered.
E.g. 6 month noticed served on 1 January expires on 1 July

Notice served on the last day of the month will end on the last day of the appropriate month even if it is shorter.
E.g. 6 month notice served on 31 August will end on 28 February next year

Question 28

What is a competent landlord?

Answer 28

s25 and s26 procedures must be conducted between the tenant and the competent landlord.

The competent landlord may not be the same person as the immediate landlord to the tenant.

The competent landlord is the first in the chain of landlords to own a reversionary interest which is either freehold or a leasehold that will not come to end in 14 months time.

e.g. if an undertenant has a protected lease but their immediate landlord’s lease expires the day after their own, then this is not the competent landlord.