Lease Termination and Security of Tenure under a Business Lease

Question 1

How does a lease come to an end with the ‘effluxion of time’?

Answer 1

This occurs with a fixed term lease.

The terms automatically determine the end dater and no notice is needed for the term on a fixed term lease to come to an end.

Question 2

What is a notice to quit?

Answer 2

• Applies to periodic tenancies.
• A notice period will be specified in the lease whereby the tenant or landlord can quit the lease by giving the notice specified.
• It will usually be a full notice period defined in the lease (so a yearly tenancy will usually require notice of 6 months, and a monthly tenancy will likely require 1 month notice).

Question 3

How must a lease be surrender?

Answer 3

By deed and to the agreement of both parties. This ends the tenancy in accordance with the terms in the deed.

Question 4

How is a lease brought to an end by merger?

Answer 4

• This is when the tenant acquires the landlord’s freehold interest. They buy the freehold estate thus burning the lease to an end.
• The lease is said to merge with the freehold interest which then vests in the tenant absolutely.
• This can also acquire where both the lease and the freehold are acquired by a third party.

Question 5

What protection is a lease afforded if it falls within the remit of the LTA 1954?

Answer 5

The tenancy is protected and therefore may continue until it is terminated in accordance with the provisions of the 1954 Act.

Question 6

What are the requirements for a lease to fall within the protection of the LTA 1954 (in accordance with s23)?

Answer 6

1) There must be a tenancy (not a licence);
2) Of a property which is occupied by the tenant;
3) For business purposes.

Question 7

How is business defined for the purpose of the LTA 1954?

Answer 7

• A trade profession or employment, and in the case of a body of persons, any activity carried on by them.
• It does not necessarily need to be a business/ commercial activity being run (for example both tennis clubs and hospitals have fallen within the definition of business for the benefit of the act).

Question 8

List the types of tenancies which are NOT deemed to fall within the LTA 1954 (and therefore do not receive protection).

Answer 8

1) Tenancies at Will - meaning those which can be terminated at any time by either party;

2) Fixed term tenancies which do not exceed 6 months (apart from some exceptions);

3) Certain types of business leases - including tenancies of agricultural holdings, farm businesses and mining leases. these are all excluded out of the LTA 1954.

4) Fixed term tenancies which are contracted out of the 1954 act - this means the provisions of the 1954 Act have been expressly excluded form the lease (although the strict statutory procedure to exclude the Act must be followed).

Question 9

Explain when a 6 month fixed term tenancy will not be afforded the protection of the 1954 Act.

Answer 9

It will not gain the protection where:

1) Tenant (or its predecessor in the same business) has been in occupation for more than 12 months, and the new tenancy is for 6 months or less. effectively, the landlord can’t get around the protections of the act by simply granting a series of 6 month tenancies; or

2) If a tenancy does not exceed 6 moths, but contains a provision allowing renewal or extension of the term beyond 6 months, the tenancy will be afforded protection under the act.

Question 10

What is the effect of the LTA 1954 protection?

Answer 10

It means the tenancy will continue until terminated in accordance with the 1954 Act.

Where the tenancy is terminated in accordance with the act, the tenant has the right to apply to the court for a new tenancy, and this can only be opposed on one of the 7 statutory grounds set out in s30 of the Act.

Question 10

What are the 7 statutory grounds for terminating a lease?

Answer 10

1) Service of landlord notice under s25;

2) Service of tenant’s request for a new tenancy under s26;

3) Forfeiture;

4) Surrender;

5) The tenant giving the landlord notice to quit (applicable to periodic tenancies);

6) Tenant serving 3 months written notice on landlord under s27 (as long as notice does not expire before the contractual expiry date. this only applies to fixed term leases;

7) Tenant ceasing to be in occupation for business purposes at the end of the lease (in accordance with s27A). This is applicable to fixed term leases.

Question 10

Explain the statutory procedure which needs to be followed in order for a lease to effectively ‘contract out’ the provisions of the LTA 1954.

Answer 10

1) Landlord must give tenant notice in prescribed form, warning tenant they are agreeing to lease without security of tenure;

2) The notice must recommend the tenant seek professional advice on the effect of the act being contracted out;

3) Tenant must then (within 14 days) make a declaration in a prescribed form that they have received notice and agree that lease can be contracted out;

4) If the tenant is given the notice by the landlord less than 14 days before the the grant of the lease, tenant’s declaration must be done by statutory declaration before an independent solicitor; and

5) The lease must make reference to the notice, and the tenant’s declaration must be contained or referenced in the lease itself.

Question 11

Explain the provision of s27A LTA 1954.

Answer 11

Allows the tenancy, at the end of its fixed term, to be ended where the tenant is no longer using it for business purposes at the time the lease ends.

Question 12

Explain the provision of s27 LTA 1954.

Answer 12

Allows tenant to serve notice on landlord to end the fixed term tenancy.

Note this section does NOT give the landlord the same right.

Question 13

What is the only way the landlord can end a tenancy (which is protected by the 1954 Act)?

Answer 13

They must use s25 LTA 1954.

Question 14

Explain the provision of s25 notice under the LTA 1954 (termination by the landlord).

Answer 14

• Can be used to terminate fixed term tenancy or periodic tenancy.
• Landlord must follow correct procedure, as follows:

1) First must serve a s25 notice on the tenant. They serve this regardless of whether they want the property back or whether they want to grant a new lease. The notice must make it clear whether landlord opposes the grant of a new tenancy or not.

2) If a new tenancy is to be granted, landlord must set out the proposed terms of the new tenancy in the notice.

3) If landlord opposes the new tenancy, they must state the s30 grounds.

4) Notice must state date on which landlord wants tenancy to end. This cannot be earlier than the date the tenancy could have been terminated under common law (eg it cannot be earlier than the expiry of the fixed term).

5) The notice must be served no less than 6 months and no more than 12 months before the termination date specified in the notice. Termination date also can’t be sooner than the lease otherwise could have come to an end under the common law.

6) If landlord has not served s25 notice in time to terminate tenancy on the contractual expiry date, and the 6 months would end (for example) 1 month after the lease expires, the tenancy will continue in that extra month.

Question 15

A 10 year fixed term lease ends 29th September 2023 (and lease is not contracted out of 1954 Act). If landlord wants to terminate tenancy on contractual end date (using s25 notice) what should they do?

Answer 15

Serve the notice specifying they want it to end on 29th September 2023.

Termination date should be served between 29th September 2022 (ie no more than 12 months before the end date) and 29th March 2023 (no less than 6 months before the termination date).

If the notice is served less than 6 months before the end of the tenancy, then this will have the effect of moving the end date 6 months from the date the s25 notice is given by the landlord.

Question 16

Summarise the requirements of the s25 notice method of ending a tenancy.

Answer 16

1) Landlord serves s25 notice specifying proposed termination date (which cannot be earlier than the date it would have otherwise ended).

2) Notice must be served on the tenant no less than 6 months, but no more than 12 months, before the proposed termination date.

Question 17

If tenant wants to stay in the property and be granted a new tenancy, what must the tenant do when served with a s25 notice from the landlord?

Answer 17

They must apply to the court before the notice expires to extend the time limit.

If they do not they will lose their rights under the LTA 1954.

Landlord may have put in an application to the court themself when they served the s25 notice, asking to terminate the lease on the grounds specified in their notice. The landlord cannot apply to the court if the tenant has lodged an application on receipt before the landlord’s application goes in.

Question 18

If the landlord does not oppose a new lease in their s25 notice, and they enter into negotiations for the new lease, should the tenant still make an application to extend the time limit with the court?

Answer 18

Yes. This is to safeguard their position in case the negotiations do not work.

Question 19

If the tenant wishes to stay in the property beyond the contractual expiry date, what are their options?

Answer 19

1) Do nothing (and wait for the landlord to serve a s25 notice); or
2) Make a s26 request.

Question 20

What is a s26 request?

Answer 20

It brings the current tenancy to an end and makes a request for a new tenancy.

Tenant may choose to do this because they feel market rate of rent has decreased and they want new terms.

Question 21

What requirements must be complied with to make a s26 request?

Answer 21

1) It must state the date on which the tenant wants new tenancy to begin; and

2) The request must contain the tenant’s proposals for a new tenancy; and

3) Tenant must give landlord between 6 and 12 months notice of date they want the new tenancy to start, and this cannot be earlier than the date the tenancy could have been terminated under common law.

Question 22

How can the landlord respond to a s26 request?

Answer 22

Landlord must serve counter notice on the tenant within 2 months of the tenant’s s26 request, stating one of the s30 grounds of opposition.

Question 23

If the landlord opposes the s26 request, what must the tenant then do?

Answer 23

Tenant must then ensure they apply to court for a new lease, otherwise they loose their rights under the 1954 act.

Application must be made prior to the commencement date of the new tenancy specified in the tenant’s s26 request (unless landlord agrees to an extension of this time limit).

Note that landlord can pre-empt tenant’s application by applying to the court to terminate the lease on the grounds they have stated in their counter-notice (unless tenant has already applied asking for the lease to be renewed).

Question 23

If landlord opposes new tenancy, its s25 notice, or counter notice under s26 must specify one of the s30 grounds of opposition. List these grounds of opposition.

Answer 23

1) Tenant’s failure to repair;

2) Tenant’s persistent delay in paying rent;

3) Tenant’s substantial breach of other obligations;

4) Landlord has offered alternative accommodation (which is suitable to tenant’s needs and on reasonable terms);

5) Tenancy is an underletting in part;

6) Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession; and

7) Landlord intends to occupy the holding for its own business or residence.

Question 23

Which of the s30 grounds of opposition are discretionary?

Answer 23

The court still has discretion as to whether to grant a new lease if the landlord uses one of the following s30 grounds:

• Tenant’s failure to repair;
• Tenant’s persistent delay in paying rent;
• Tenant’s substantial breach of other obligations;
• Tenancy is an underletting in part;

Question 24

Which of the s30 grounds are mandatory?

Answer 24

Under the following grounds, the landlord must refuse a new tenancy if it is proven one of the below can be relied upon:

• Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession;
• Landlord intends to occupy the holding for its own business or residence (this can’t be relied upon unless landlord has owned their interest for at least 5 years);
• Landlord has offered alternative accommodation (which is suitable to tenant’s needs and on reasonable terms).

Question 25

Which s30 ground is most commonly used?

Answer 25

Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession.

To use this ground, the landlord must show that, on termination of the tenancy:

1) It has firm and settled intention to carry on the works (eg has obtained planning permission and finances are in place);

2) It intends to demolish/ reconstruct premises (or a substantial part of the premises); and

3) It can’t carry on the works without obtaining possession (so it won’t succeed if tenant has given permission to landlord to do the works and this wouldn’t interfere with tenant’s use of the property in a substantial way).

Question 25

What is the term of a new lease (approved by the court under the act) likely to be?

Answer 25

It cannot be more than 15 years (and is usually between 5 and 7 years).

the new leaf cannot commence until three months after the the proceedings have Beene disposed of.

Question 26

If a lease is granted by the court under the 1954 Act, how is the rate of rent determined?

Answer 26

It is the open market rent having regard to the other terms of the tenancy.

The court must dragged the following when coming to a conclusion about the rent payable:

1) The fact the tenant was in occupation;
2) Goodwill attached to the holding;
3) Effect on rent of any improvements voluntarily carried out by tenant during the tenancy; and
4) in case of licensed premises, any addition in value due to the tenant’s licence.

Question 27

Can the court insert a rent review clause in the new lease they grant a tenant under the Act?

Answer 27

Yes.

This can be done even if there wasn’t a a ret review close in the previous lease.

Question 28

what course of action do the patties have if the lease ordered by the court is unacceptable to them?

Answer 28

The tenant can patly for the order to be revoked.

The landlord does not have this right.

Question 29

What happens where the tenant is refused the new lease under one of the s30 mandatory grounds?

Answer 29

Tenant will be entitled to compensation.

The amount will be equivalent to the retable value of the holdings, unless tenant and their predecessors have been in occupation for 14 years or more. If this is the case it will be twice the rateable value.

Question 30

Can the lease contain a provision which excludes the tenant’s right to compensation where a tenancy is refused on one of the s30 mandatory grounds?

Answer 30

Yes but this only has effect if tenant and predecessors have been in occupation for less than 5 years.