Business Tenancies Flashcards
Where does security of tenure come from
Landlord and tenant act 1954 introduced security of tenure for commercial tenants.
Benefits of security of tenure for the tenant
- tenant being able to treat the premises as a long term prospect means that the tenant can invest in fitting out the premises and making the suitable for their purposes
- retail or restaurant business know that they can reap the benefits of goodwill from their location
- tenant does not have to worry about the considerable upheaval that could be caused by having to move at the end of the contractual term
Benefits of security of tenure for the landlord
- premises are more appealing to prospective tenants
- tenant may be encouraged to treat the premises as their own and therefore look after them (of course there are still repairing obligations)
- May be beneficial to the landlord at rent review as the market rent may be higher for a lease enjoying security of tenure
Disadvantages:
Limits the freedom landlords have over their own property - complying with its requirements can also be quite complicated
To whom does security of tenure apply?
- Any tenancy
- Occupied by the tenant
- For the purposes of business
What kinds of tenancies benefit form security of tenure?
- Fixed term tenancy (must be more than 6 months)
- Periodic tenancy
CANNOT benefit:
- tenancy at will (personal permission)
- Licence
Note 6 months fixed: - but can become protected if tenant has been in occupation for 12 months or more (whether successive or renewable)
“Occupied by the tenant
- If vacant cannot claim
- if underlet the whole or part of the premises then it cannot be in occupation and will lose security over the whole or part of the premises accordingly
“For the purposes of business”
Any “trade, profession or employment”
Have been held to be:
- charity shop
- tennis club
- residential use that furthers tenants use (lease of shop with flat above)
Not:
- free sunday school sessions
- tenant of a house taking a small number of lodgers without profit
Excluded tenancies
Excluded:
- agricultural
- mining
- service tenancies
- fixed term tenancies of six months or less - but can become protected if tenant has been in occupation for 12 months or more (whether successive or renewable)
Contracted out tenancies
Parties can exclude a fixed term lease from security of tenure by agreement - “contracting out”
May not want to as it can limit the premises’ appeal.
Commonly contracted out:
- short term leases (5 years or less)
- underleases (usually required by tenant’s lease)
Note: periodic tenancies cannot be contracted out
Procedure for contracting out
- Landlord must serve a warning notice on the tenant in a prescribed form (details the consequences of contracting out the security of tenure) - must be served BEFORE the parties complete the lease
- Tenant must provide a declaration in prescribed form to the landlord.
- if warning notice is at least 14 days before completion: simple signed declaration
- less than 14 days: statutory declaration (declared before independent solicitor)
Lease MUST contain reference to both the notice and declaration of contracting out.
If not: lease will enjoy security of tenure
End of term: contracted out
Where tenancy is not protected: tenant has no right to occupy beyond the contractual term.
If landlord has notified the tenant that it requires possession at end of term and tenant continues to occupy landlord may treat them as a tresspasser.
End of term: security of tenure
If tenancy is protected then the tenant has the right to stay in occupation.
Known as ‘holding over’.
Landlord cannot evict the tenant and the tenant’s occupation can only be brought to an end by certain methods allowed by the LTA 1954.
Ending protected tenancy - Landlord
Options:
- forfeit the lease if there have 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
Ending protected tenancy - tenant
Options:
- vacate the premises at the end of the contractual term
- surrender the lease with the landlord’s agreement
- periodic: 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
Serving section 25, 26 and 27 notices
These notices are mutually exclusive.
Once one of these notices have been served the other party cannot serve a different type of notice.
What is included in a section 25 notice?
S25 notice states when the current tenancy will end.
The date of termination must be on or after the date on which the contractural term ends (end of lease).
Section 25 notice must be in the form prescribed by statue.
Hostile notice will include the grounds on which the landlord will be relying.
When can a landlord serve a serve a section 25 notice?
s25 notice must be served no less than 6 months and no more than 12 months before the date of termination.
Friendly versus hostile section 25 notice
A friendly section 25 notice indicates that the landlord is willing to renew the lease.
A hostile section 25 notice is sent where the landlord intends to oppose the lease.
Friendly section 25 notice
Landlord may send:
- peace of mind: the landlord wants the tenant to be tied to a further term 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 period
Note: most leases have a rent renewal on the last day before before the end of the contractual term (so review right before holding over - but can’t increase once holding over starts)
Hostile section 25 notice
Seven grounds on which the landlord can oppose renewal of the tenant’s lease:
- persistent and serious breach by the tenant of a repairing obligation
- persistent delay in the tenant paying rent
- serious and persistent other breaches of covenants by the tenant
- landlord offers suitable alternative accommodation
- the landlord intends to demolish or reconstruct the premises or carry out substantial construction work which require possession
- landlord intends to occupy the premises themselves
Mandatory and discretionary grounds
Mandatory: means that if the landlord establishes the ground the court must grant possession to the landlord
Discretionary: means that even if the landlord shows the ground it is up to the court’s discretion. (all of the breaches are discretionary grounds)
Compensatory and non-compensatory grounds
Compensatory: If the ground is no fault of the tenant then the tenant may be entitled to compensation
Non-compensatory: if the ground relies on the tenant’s fault then the tenant is not entitled to compensation
breaches are not compensatory and neither is an offer of alternative accommodation (because they are providing a solution) but wanting to develop or move in is compensatory
What is rateable value?
Based on the estimated annual rental value of the premises and FIXED by the local authority
Calculating compensation
Occupied for less than 14 years: 1x rateable value
Occupied for 14 years or more: 2x rateable value
Note: if someone has taken over a business they can include the time the previous tenant spent there but requires transfer of goodwill not simply same kind of business.
Only possible for parties to a protected lease to contract out of compensation if tenant has been in occupation for less than five years.
