Lease Termination and Security of Tenure Under a Business Lease

Question 1

What are the methods of terminating a lease at common law, and what are the requirements for each method?

Answer 1

Termination at common law can occur through:
1. Effluxion of time:
* A fixed-term lease ends automatically when the contractual term expires without requiring notice.

• Example: A 5-year lease beginning January 1, 2018, ends December 31, 2022, without notice.

2. Notice to quit:
   * Applies to periodic tenancies.

• Yearly tenancy: Requires at least 6 months’ notice ending on the last day of the tenancy year.
• Other periodic tenancies: Require notice equal to one full tenancy period (e.g., monthly, quarterly) ending at the end of a completed period.
• Example: A monthly tenancy starting on the 1st of each month, with notice served on August 14, would expire September 30 (one full month ending on the last day of a period).

3. Surrender:
   
   • Occurs when the tenant voluntarily yields up the lease, and the landlord agrees to accept it.

• To be valid, surrender must be executed by deed under LPA 1925, s 52.
• Example: A tenant struggling financially negotiates with the landlord to terminate a 10-year lease early, signing a deed of surrender.

Question 2

What is “security of tenure,” and how does the Landlord and Tenant Act 1954 protect business tenants?

Answer 2

Security of tenure ensures tenants can continue occupying premises for business purposes even after the contractual term ends.

Protections under the Landlord and Tenant Act 1954 (1954 Act):

1. The lease does not automatically terminate at the end of its contractual term.
2. The tenant can apply for renewal unless the landlord opposes on specific statutory grounds (s 30 of the Act).
3. A landlord wishing to terminate must follow statutory procedures (e.g., serving a s 25 notice).

Example: A bakery’s lease expires, but the tenant remains in occupation. The landlord must follow the 1954 Act’s process to end the tenancy or negotiate a new one.

Question 3

Which tenancies are excluded from the protections of the 1954 Act, and what conditions must be met for exclusion?

Answer 3

Exclusions include:
1. Tenancies at will: Can be terminated at any time by either party.

2. Fixed-term tenancies not exceeding six months, unless:

• The tenant has occupied the property for more than 12 months through successive short tenancies.
• The tenancy includes a renewal/extension clause.

3. Specific lease types: Agricultural holdings, farm business tenancies, and mining leases.
4. Contracted-out leases:
   * Requires a statutory procedure:

• Landlord serves a prescribed warning notice before the lease begins.
• Tenant signs a declaration confirming receipt and understanding.
• If the notice is given less than 14 days before the lease starts, the tenant must make a statutory declaration before an independent solicitor.
• A reference to this procedure must be endorsed on the lease.

Example: A landlord grants a tenant three consecutive six-month leases, totaling 18 months. The tenant gains protection under the 1954 Act despite the short lease terms.

Question 4

How does the 1954 Act modify the common law rules for lease termination?

Answer 4

The 1954 Act overrides common law termination methods for protected tenancies.

1. A fixed-term tenancy does not end upon effluxion of time but continues until terminated under the Act.
2. A periodic tenancy cannot be terminated by a landlord’s notice to quit.

Example: A tenant occupies a shop under a periodic tenancy. The landlord cannot serve a notice to quit but must follow the Act’s procedures, such as a s 25 notice.

Question 5

What are the statutory grounds under s 30 of the 1954 Act that allow a landlord to oppose a tenant’s renewal request?

Answer 5

Under s 30, landlords can oppose renewal on the following grounds:
1. Tenant’s failure to repair or breach of obligations.

2. Persistent delay in paying rent.
3. Landlord intends to redevelop the property.
4. Landlord requires the property for personal use.
5. The property is unsuitable for the tenant’s business.
6. The landlord has provided suitable alternative accommodation.
7. It would be unreasonable to grant a new lease.

Example: A landlord plans to demolish and rebuild the property occupied by a tenant. They can oppose the renewal under the redevelopment ground.

Question 6

What is a s 25 notice, and what are the procedural requirements for serving it?

Answer 6

A s 25 notice is used by landlords to terminate or propose new terms for a tenancy under the 1954 Act.

Requirements:
1. Served 6-12 months before the proposed termination date.

2. The termination date must not precede the earliest common law termination date.
3. Notice must state whether the landlord opposes renewal and, if so, the statutory grounds (s 30).

Examples:
* A lease ends September 29, 2023. To terminate, the landlord must serve a s 25 notice between September 29, 2022, and March 29, 2023.

• If the notice is served on June 25, 2023, the earliest termination date is December 25, 2023.

Question 7

How does the 1954 Act limit a landlord’s ability to terminate a protected tenancy?

Answer 7

The 1954 Act restricts landlords to specific termination methods:

1. Serving a s 25 notice.
2. Forfeiture if the tenant breaches the lease.
3. Agreement by surrender.
4. Tenant ceasing business occupation under s 27(1A).

Landlords cannot use common law methods such as notice to quit for protected tenancies.

Example: A landlord wanting to reclaim a property for redevelopment must state this as a statutory ground in the s 25 notice and comply with the procedural requirements.

Question 8

What options does a tenant have when served with a s 25 notice?

Answer 8

The tenant may:
1. Vacate the property on the specified termination date.

2. Apply for a new tenancy under the Act.
3. Negotiate terms if the landlord proposes a new lease.

If the landlord opposes renewal, they must cite s 30 grounds.

Example: A landlord serves a s 25 notice to increase rent and propose a new lease. The tenant can negotiate or apply to court for determination if they disagree with the terms.

Question 9

What must a tenant do when the landlord opposes a new tenancy in a s 25 notice, and what happens if they fail to act?

Answer 9

Tenant’s Obligation:
* Apply to court before the expiry of the s 25 notice to protect their rights under the 1954 Act.

• Failure to act results in losing the right to a new tenancy.

Landlord’s Pre-emptive Action:

• The landlord may apply to court for an order to terminate the tenancy based on the s 25 notice grounds, provided the tenant has not already applied for a new tenancy.

Key Points:
* The application is usually made to the county court.

• Extensions of the court application deadline can be agreed upon by both parties.

Example:
A tenant receives a s 25 notice specifying March 31, 2024, as the termination date. They must apply to court before this date to preserve their right to renewal. Failing to do so forfeits their tenancy rights.

Question 10

What is a s 26 request, and what are its features and uses?

Answer 10

• A s 26 request is a tenant’s notice to:
  1. Terminate the current tenancy.

2. Request a new tenancy, specifying terms and a proposed start date.
   * Features:
   * Must specify the start date of the new tenancy.
   * Must give the landlord 6–12 months’ notice.
   * The start date cannot be earlier than the earliest possible common law termination date.
   * When to Use:
   * The tenant anticipates favorable market conditions, such as lower rents.
   * The tenant plans to assign the lease and believes a new fixed term will attract buyers.

Example:
A tenant serves a s 26 request proposing a new tenancy starting on January 1, 2025, at a reduced rent reflecting current market conditions.

Question 11

What actions must a landlord take if they wish to oppose a s 26 request?

Answer 11

• Counter-Notice:
• The landlord must serve a counter-notice within 2 months of receiving the s 26 request.
• The counter-notice must specify the s 30 grounds for opposing renewal.
• Tenant’s Next Step:
• The tenant must apply to court before the commencement date proposed in the s 26 request unless an extension is agreed upon.
• Landlord’s Pre-emptive Action:
• The landlord can apply to court to terminate the lease based on the counter-notice grounds, provided the tenant has not already applied for renewal.

Example:
A tenant proposes a new lease to start July 1, 2025. The landlord serves a counter-notice within two months, citing ground (f) (redevelopment). The tenant must apply to court before July 1, 2025, or lose their rights.

Question 12

What are the s 30 grounds under the 1954 Act, and how do they differ in application?

Answer 12

• Discretionary Grounds (court decides whether renewal is granted):
  1. (a) Tenant’s failure to repair.
  2. (b) Persistent delay in paying rent.
  3. (c) Substantial breach of obligations.
  4. (e) Tenancy is an underletting of part (rarely used).
• Mandatory Grounds (if proven, court must refuse renewal):
  1. (d) Landlord has offered suitable alternative accommodation.

2. (f) Landlord intends to demolish/reconstruct the premises and cannot reasonably do so without possession.
3. (g) Landlord intends to occupy the premises for their business or as a residence.

Example:
A landlord opposes renewal on ground (f), showing evidence of planning permission and secured financing for redevelopment.

Question 13

What are the specific requirements for relying on s 30(f) (redevelopment) and s 30(g) (personal use)?

Answer 13

Ground (f) – Redevelopment:
* The landlord must demonstrate:

1. A firm intention to redevelop (e.g., planning permission obtained, financial arrangements in place).
2. The work cannot reasonably be done without obtaining possession.
3. If the tenant agrees to access for the work, the ground fails.

Ground (g) – Personal Use:
* The landlord must:
1. Own the property interest for 5+ years unless purchased with vacant possession.

2. Show a firm intention to occupy the premises for their business or residence.
3. Provide evidence of steps taken to achieve this (e.g., planning, licensing).

Example (f): A landlord provides detailed redevelopment plans requiring vacant possession to proceed.
Example (g): A landlord shows evidence of plans to establish their business at the premises, including permits.

Question 14

What compensation is a tenant entitled to if a landlord opposes renewal on no-fault grounds (s 30(e), (f), or (g))?

Answer 14

• Compensation Amount:
• Equal to the rateable value of the premises.
• Double the rateable value if the tenant (or predecessor) has occupied for 14+ years.
• Restrictions on Compensation:
• Any agreement to exclude compensation is void if the tenant has occupied for 5+ years.

Example:
A shop tenant of 15 years is forced to vacate for redevelopment (ground f). They receive compensation equal to twice the rateable value.

Question 15

How are the terms of a new lease determined under the 1954 Act?

Answer 15

1. Holding: The new lease covers the property occupied, excluding sublet parts unless agreed otherwise.
2. Term:
   * Maximum of 15 years.
   * Typical terms are 5–7 years.
3. Rent:
   * Based on open market value, disregarding:
   * Tenant’s goodwill or improvements.
   * Effects of tenant’s occupation.
   * Increased value of licensed premises.

Court-Determined Adjustments:
* Terms reflect reasonableness and may include rent review clauses, even if absent in the prior lease.

Example:
A tenant receives a 7-year lease at market rent, excluding the goodwill of their long-standing restaurant business.

Question 16

What steps can tenants and landlords take during lease renewal negotiations to avoid court disputes?

Answer 16

• Tenant’s Safeguard:
• Apply to court before the termination date in the s 26 request or s 25 notice to protect rights.
• Request deadline extensions during negotiations.
• Landlord’s Role:
• Respond promptly to tenant proposals.
• Avoid delays in providing counter-notices or agreement terms.

Example:
A tenant negotiating lease terms agrees with the landlord to extend the court application deadline to finalize terms amicably.

Question 17

When can the court insert a rent review clause in a new lease, and how is the rent assessed?

Answer 17

• Rent Review Clause:
• The court may insert a clause even if absent in the prior lease.
• Ensures periodic rent adjustments reflect market conditions.
• Rent Assessment:
• Based on open market rent.
• Excludes:
  1. Goodwill generated by the tenant.
  2. Improvements made by the tenant.
  3. Tenant’s occupational effects.

Example:
A new lease includes a rent review clause every three years, ensuring rent aligns with market trends while excluding the tenant’s improvements.

Question 18

Under what conditions does a fixed-term tenancy not exceeding six months benefit from protection under the 1954 Act, despite the general exclusion?

Answer 18

• General Rule: Fixed-term tenancies not exceeding six months are normally excluded from protection under the Landlord and Tenant Act 1954.
• Exception: If the tenancy includes an option to renew or extend the term beyond six months, it becomes protected under s43(3) of the 1954 Act.

Key Points to Remember:
1. The option to renew or extend must be explicitly included in the terms of the lease.

2. Once the option is exercised or if the conditions for extension are met, the tenancy qualifies for the security of tenure provisions under the Act.

Example: A tenant signs a 5-month lease that includes a clause allowing them to renew for an additional 6 months. If the tenant exercises this option, the tenancy becomes protected under the 1954 Act.

Question 19

Under s23(1) of the Landlord and Tenant Act 1954, what is the requirement for a tenant to qualify for protection, and what happens if the tenant sub-lets the whole premises?

Answer 19

• To qualify for protection under s23(1) LTA 1954, the tenant must be occupying the premises for the purpose of a business.
• If the tenant sub-lets the whole premises, they can no longer be considered to be in occupation of the premises, and therefore, they do not qualify for protection under the Act.

Question 20

How do you determine the competent landlord for a sub-tenant’s request for a new lease under the LTA 1954, and what happens if the immediate landlord does not qualify?

Answer 20

Step 1: Examine the Chain of Landlords
* In sub-lease scenarios, you must identify the competent landlord, the party who can grant a lease renewal.

Step 2: Immediate Landlord’s Eligibility:

The sub-tenant’s immediate landlord (e.g., the limited company) can only be the competent landlord if:

1. It has 14 months or more remaining on its lease.
2. It is in occupation of the property.

• Step 3: If the Immediate Landlord Fails
• If the immediate landlord:
• Has less than 14 months remaining on its lease (e.g., 13 months in this case).
• Is not in occupation of the premises.
• It cannot act as the competent landlord or qualify for security of tenure.
• Step 4: Move Up the Chain
• The next landlord in the chain of tenancies becomes the competent landlord.
• In this case, the freeholder is the competent landlord.

Example:
A sub-tenant wants a new lease. Their immediate landlord (the limited company) has 13 months left on its lease and does not occupy the property. As a result, the competent landlord is the freeholder, not the limited company.

Question 21

In the following scenario, can the new freehold owner use ground (g) under s30(1) LTA 1954 to evict the tenant, and why not?

A landlord owns the freehold of an office building and granted a lease for the entire building 10 years ago. The lease has 8 months left, and the tenant remains in full occupation with no sub-letting. The lease benefits from the Landlord and Tenant Act 1954. A woman is purchasing the freehold and plans to use the premises for her own business. She wants to evict the tenant at the lease’s expiration.

Answer 21

• Ground (g) Under s30(1):
• Allows a landlord to oppose tenancy renewal if they intend to occupy the premises for their own business purposes.
• Requires the landlord to have owned the freehold for five years or more.
• Why It Does Not Apply Here:
• The woman is purchasing the freehold now and will not meet the 5-year ownership requirement before the lease ends in 8 months.
• Therefore, she cannot use ground (g) to evict the tenant.

Conclusion:
The new freehold owner cannot rely on ground (g) to terminate the tenant’s lease because she will not satisfy the 5-year ownership condition required under the LTA 1954.

Question 22

What are a tenant’s options upon receiving a s 25 notice, and how should they proceed based on their decision to renew or vacate?

Answer 22

1. If the tenant does not wish to renew the lease:
   * The tenant must vacate by the termination date specified in the s 25 notice.
2. If the tenant wishes to renew the lease:

• If the s 25 notice does not oppose renewal:
• Check if a new lease will be agreed by the termination date (or any agreed extension):
• Yes: No further action is required, provided the new lease is completed by the relevant date.
• No: The tenant must apply to court for a new lease before the termination date.
• If the s 25 notice opposes renewal:
• Determine if the landlord has applied for a court order to terminate the lease:
• Yes: The court will determine the matter.
• No: The tenant must apply to court for a new lease before the termination date, and the court will resolve the issue(s).

Summary:
The tenant must either vacate by the termination date or actively seek a court application for a new lease if no agreement is reached or renewal is opposed.

Question 23

What are a landlord’s options upon receiving a s 26 request from a tenant, and how does the process unfold depending on the landlord’s decision?

Answer 23

1. If the landlord wishes to oppose the grant of a new tenancy:
   * The landlord must serve a counter-notice within 2 months of receiving the s 26 request, citing the grounds for opposition.
2. If the landlord does not oppose the grant of a new tenancy:
   * The landlord and tenant proceed to negotiate the terms of the new lease.
3. What happens next?
   * Check if the tenant has applied to court for a new lease before the specified date in the s 26 request or any agreed extension:

• If yes: The court will determine the issue(s).
• If no: Determine whether the relevant date has arrived:
• If the date has not arrived: The landlord can apply to court for an order to terminate the lease.
• If the date has arrived: The tenant loses the right to renew and must vacate the premises.

Summary:
The landlord’s response to a s 26 request (opposition or negotiation) and the tenant’s timely court application are critical in determining whether the lease is renewed or terminated.