Business tenancies

Question 1

What is security for tenure?

Answer 1

Security of tenure is a legal right that allows tenants to remain in a property or continue using a building after their lease expires.

Question 2

What are the benefits of security of tenure for a tenant?

Answer 2

-They can invest in the premises

-Can build up goodwill

-Don’t have to worry about moving costs

Question 3

What are the benefits of security of tenure for a landlord?

Answer 3

-More appealing to tenants

-Tenant more likely to look after the premises

-Beneficial at rent review

Question 4

When do the security of tenure provisions apply under S23(1) LTA 1954?

Answer 4

Any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purpose.

Question 5

What type of tenancies are excluded from security of tenure under S43 LTA 1954?

Answer 5

-Agricultural tenancies

-Mining leases

-Service tenancies

-Fixed term tenancies of six months or less

Question 6

What does S38A LTA 1954 allow the parties to do in terms of contracting out?

Answer 6

S38A LTA 1954 allows the parties to agree to exclude a fixed term lease from the security of tenure provisions-this is known as contracting out.

The following tenancies are commonly contracted out:

-short term leases (5 years or less)

-underleases

Question 7

Outline the procedure for contracting out of security of tenure.

Answer 7

-Landlord serves warning notice on tenant before the parties complete the lease

-Tenant provides declaration to landlord before completing lease

-If lease completion is at least 14 days from the date of the warning notice, then this can be a signed declaration

-If lease completion is less than 14 days away, then the tenant must provide a statutory declaration.

-The lease must contain reference to both the notice and declaration of contracting out. If the procedure is not correctly carried out, the likelihood is that the lease will enjoy security of tenure.

Question 8

How can a landlord end a protected tenancy?

Answer 8

The landlord’s options are to:

-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 end a protected tenancy?

Answer 9

The tenant’s options are:

-vacate the premises at the end of contractual term

-surrender the lease with the landlord’s agreement

-for a periodic tenancy, service notice to quit

-serve a Section 26 notice to request a new tenancy

-serve a Section 27 notice to leave the premises

Question 10

What is a landlord’s Section 25 notice and when must it be served?

Answer 10

It is a notice that states the date of termination and must be served no less than 6 months and no more than 12 months before the date of termination. It must be in the form prescribed by statute.

Question 11

What is a friendly landlord Section 25 notice?

Answer 11

A type of Section 25 notice that indicates that the landlord is willing to renew the lease to start the day after the date of termination. It will propose the rent to be paid and principal terms of the new tenancy.

Question 12

What is a hostile landlord Section 25 notice?

Answer 12

A type of Section 25 notice that indicates that the landlord intends to oppose renewal of the lease.

Question 13

Under what statutory grounds can a landlord serve a hostile Section 25 notice?

Answer 13

-persistent and serious breach by the tenant of a repairing obligation

-persistent delay by the tenant in paying rent

-serious and persistent breaches of covenants by the tenant

-landlord offers suitable alternative accommodation

-landlord intends to demolish or reconstruct the premises

-landlord intends to occupy himself

Question 14

What is a mandatory ground?

Answer 14

This means that if the landlord establishes the ground, the Court must grant possession to the landlord.

Question 15

What is a discretionary ground?

Answer 15

This means that if the landlord shows the ground, it is down to the Court’s discretion.

Question 16

What is a compensatory ground?

Answer 16

If the ground relies on no fault of the tenant, the tenant may be entitled to compensation.

Question 17

What is a non-compensatory ground?

Answer 17

If the ground relies on the tenant’s fault, then the tenant is not entitled to compensation.

Question 18

How is compensation calculated for a tenant if their business has occupied the premises for less than 14 years?

Answer 18

At 1x the rateable value.

Question 19

How is compensation calculated for a tenant if their business has occupied the premises for 14 years or more?

Answer 19

At 2x the rateable value.

Question 20

How is the rateable value calculated?

Answer 20

Rateable value is based on estimated annual rental value of premises, and is fixed by the local authority for the purpose of calculating business rates due for the premises.

Question 21

What type of ground is a ‘breach of tenant repairing obligation’, what evidence is required and is it compensatory?

Answer 21

Discretionary ground.

Evidence of serious breach.

Non-compensatory.

Question 22

What type of ground is ‘persistent delay in paying rent’, what evidence is required and is it compensatory?

Answer 22

Discretionary ground.

Evidence of length of delay and number of times.

Non-compensatory.

Question 23

What type of ground is ‘other substantial breaches of tenant obligations’, what evidence is required and is it compensatory?

Answer 23

Discretionary ground.

Evidence of serious and persistent breaches.

Non-compensatory.

Question 24

What type of ground is ‘availability of suitable alternative accommodation’, what evidence is required and is it compensatory?

Answer 24

Mandatory ground.

Evidence of an offer of suitable alternative accommodation to the tenant.

Non-compensatory.

Question 25

What type of ground is an ‘intention to demolish/reconstruct the premises’, what evidence is required and is it compensatory?

Answer 25

Mandatory ground.

Evidence of a firm and settled intention to redevelop e.g. planning permission or construction contract.

Compensatory.

Question 26

What type of ground is intention to demolish/reconstruct the premises, what evidence is required and is it compensatory?

Answer 26

Mandatory ground.

Evidence of a firm and settled intention by landlord who has owned reversion for at least 5 years before the date of termination.

Compensatory.

Question 27

Does a tenant need to service notice if they intend to vacate the premises at the end of the contractual term?

Answer 27

No, this is not required whether a protected tenancy or not as the lease will expire by an effluxion of time.

Question 28

What is a Section 26 notice?

Answer 28

A Section 26 notice is a document that a commercial tenant uses to request a new tenancy from their landlord.

Question 29

What are the requirements for a Section 26 notice?

Answer 29

-Tenant must have a lease that originally granted a contractual term of more than 1 year

-Minimum notice period of 6 months and maximum notice period of 12 months

-The notice will expire on the proposed commencement date of the renewal lease

Question 30

How long does a landlord have to serve a counter-notice in response to a Section 26 notice if they wish to oppose the grant of a renewal lease?

Answer 30

2 months from the date of the Section 26 notice.

Question 31

What is a Section 27 notice and when must it be given?

Answer 31

A tenant who wishes to end the lease at any time after the contractual expiry date will need to serve a Section 27 notice, which must give three months of the intended termination date, which must be no earlier than the date on which the contractual term ends.

Question 32

Are Section 25,26 & 27 notices mutually exclusive?

Answer 32

Yes, once one has been served the other cannot be used.

Question 33

When can the parties to apply to the Court after service of a Section 25 notice?

Answer 33

The deadline for applying is the date of termination specified in the notice.

Question 34

When can the parties apply to the Court after service of a Section 26 notice?

Answer 34

The parties may apply after either the landlord has served a counter-notice or if two months have elapsed from the Section 26 notice.

The deadline for applying to the Court is the day before the proposed commencement date of the new lease.

Question 35

What is the maximum length of term a Court can grant in a new lease and what will the rent be?

Answer 35

A term up to 15 years and the rent will be open market rent.

Question 36

When does a Court order in respect of a new lease/termination of an existing one take effect?

Answer 36

Three months and 21 days from the date of the order.

Question 37

When does a notice expire?

Answer 37

A notice expires on the same date as the date on which it was served e.g. a 6 month notice served on 1 January expires on 1 July.

Question 38

What is the corresponding date rule?

Answer 38

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

Question 39

Who is the competent landlord?

Answer 39

The first in the chain of landlords, starting with the immediate landlord to own a reversionary interest which is either freehold or a leasehold that will not end in 14 months’ time.