Property (Business Tenancies)

Question 1

What is Security of Tenure?

Answer 1

A tenancy protected by the 1954 Act may continue until it is terminated in accordance with the provisions of the Act.

For example, a fixed-term business lease will not necessarily end at the expiration of the fixed term, nor will a periodic business lease necessarily end with a notice to quit.

Question 2

When does the security of tenure provision apply?

Answer 2

Under s.23(1) LTA 1954, the provisions apply to any tenancy where the property is occupied by the tenant and is used for business purposes.

Question 3

What does ‘any tenancy’ mean?

Answer 3

This includes tenancies that provide exclusive possession and bind successors

It excludes Licence (no proprietary interest) and Tenancy at Will (personal permission with exclusive possession, revocable by either party).

Question 4

What does ‘occupied by the tenant’ mean?

Answer 4

If the tenant leaves the premises vacant, they lose security of tenure.

Subletting any part of the premises also removes SoT rights for that part, as seen when a tenant underlets a floor and retains SoT only on the other floors.

Question 5

What does ‘for the purposes of business’ mean?

Answer 5

The property must be used for trade, profession, or employment, including charity shops or accommodations for business, but excludes non-business uses, like free Sunday school sessions.

Question 6

What tenancies are excluded?

Answer 6

Under s.43 LTA, certain tenancies are excluded:

• agricultural tenancies
• mining leases
• service tenancies
• fixed-term tenancies of six months or less

Question 7

Can you contract out of security of tenure?

Answer 7

Yes, under s.38A LTA, parties may exclude fixed leases from SoT provisions, but this does not apply to periodic tenancies.

Question 8

How to contract out of Security of Tenure Provisions

Answer 8

The landlord must serve a warning notice and the tenant must provide a declaration before lease completion.

• If completion is more than 14 days after the warning notice, a simple signed declaration is sufficient
• If completion is within 14 days after the warning notice, the tenant must provide a statutory declaration before a solicitor.

The lease must contain reference to the notice and declaration.

Question 9

What happens if the lease does not contain reference to the notice or declearation for SoT?

Answer 9

If the procedure is incorrectly carried out, or not referred to in the lease, the lease will enjoy security of tenure

Question 10

What happens at the end of the contractual term?

Answer 10

Non-protected tenants must vacate by term end or risk being trespassers if the landlord demands possession.

Protected tenants can remain in occupation (‘holding over’) until the lease is terminated per LTA rules.

Question 11

How can a landlord end a protected tenancy?

Answer 11

A landlord can end a protected tenancy by either forfeiting the lease for covenant breach (if allowed) or serving a section 25 notice.

Question 12

How can a tenant end a protected tenancy?

Answer 12

A tenant may vacate, surrender the lease, or serve a notice to quit for periodic tenancies.

Additionally, they can

• Serve a s.26 notice for a new tenancy
• Serve a s.27 notice to leave.

Question 13

What is a Section 25 Notice?

Answer 13

A s.25 notice is served by the landlord

It specifies the tenancy termination date, which must be on or after the contractual end. It must be served 6-12 months before the proposed termination date and in the prescribed form.

It can be friendly or hostile

Question 14

What is a friendly s.25 Notice?

Answer 14

This notice signals the landlord’s willingness to renew the lease with proposed rent and terms.

Rent remains unchanged during the holding over period until renewal.

Question 15

What is a hostile s.25 Notice?

Answer 15

This notice indicates the landlord’s opposition to renewal on one or more of seven statutory grounds:

• Persistent and serious breach of a repairing obligation
• Persistent delay in paying rent
• Serious and persistent other breaches of covenants by the tenant
• The landlord offers suitable alternative accommodation
• The landlord intends to demolish or reconstruct the premises or carry out substantial construction work
• The landlord intends to occupy the premises for itself

Question 16

What notice (if any) can a landlord serve on a tenant with SoT if they wish to offer alternative accommodation?

Answer 16

A hostile s.25 notice relying on the ground that the landlord offers suitable alternative accommodation

Question 17

What is the difference between mandatory and discretionary grounds in a hostile s.25 notice?

Answer 17

Mandatory grounds compel the court to grant possession if established

Discretionary grounds leave possession at the court’s discretion.

Question 18

What are compensatory vs. non-compensatory grounds?

Answer 18

Compensatory grounds allow tenant compensation if eviction is due to landlord needs (e.g., redevelopment)

Non-compensatory grounds deny compensation if due to tenant faults.

Question 19

How is compensation calculated for eviction?

Answer 19

For tenants in premises for under 14 years, compensation is 1% of rateable value

For 14+ years, it is 2%.

Compensation can be contracted out if occupancy is under 5 years.

Question 20

What grounds are non-compensatory and discretionary?

Answer 20

• Breach of tenant repairing obligation
• Persistent delay of paying rent
• Substantial breaches of tenant obligations

Question 21

What grounds are non-compensatory and mandatory?

Answer 21

Availability of suitable alternative accommodation.

Question 22

What grounds are compensatory and mandatory?

Answer 22

Landlord’s intention to demolish, reconstruct, or occupy the property after owning reversion for at least 5 years.

Question 23

What are the simple options for a tenant at lease end?

Answer 23

A tenant may vacate at term end or surrender the lease with landlord agreement, but neither option serves as a request to renew or end outside the contractual term.

Question 24

How can a tenant renew the lease with a s.26 Notice?

Answer 24

The tenant can request renewal via s.26 notice, which must be served 6-12 months before the desired renewal date, provided the original term was more than a year.

s.26 is used BEFORE the end (not after during holding over)

Question 25

How can a landlord respond to a s.26 Notice?

Answer 25

A landlord has 2 months from the s.26 notice to serve a counter-notice (opposing renewal) and can only do so if one of the statutory grounds apply (as with s.25)

Question 26

How can a tenant end the lease after holding over with a s.27 Notice?

Answer 26

A tenant must serve a s.27 notice at least three months before the termination date.

This is used during the holding over period.

After serving, the tenant cannot serve a s.26 or the landlord a s.25 notice.

Question 27

What is the court application process for s.25

Answer 27

Either party may apply to court at any time after service of a s.25 notice, the deadline for applying being the date of termination specified in the notice.

Question 28

What is the court application process for s.26

Answer 28

The parties may apply either

(a) after the landlord served a counter-notice; or
(b) two months have elapsed from the s.26 deadline.

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

Question 29

How does the negotiation of new lease terms work?

Answer 29

After a friendly s.25 or s.26 notice, parties negotiate renewal terms or ask the court to decide. Court-set terms include a term up to 15 years at open market rent.

Question 30

What is interim rent?

Answer 30

During holding over, the tenant continues to pay the last reviewed rent. Either party can request a court adjustment to open market rent, starting from the earliest applicable termination date.

Question 31

What are the types of court orders for lease renewal or termination?

Answer 31

If renewal is ordered, the tenant has 14 days to accept or lose renewal rights.

If termination is ordered, the tenant must vacate 3 months and 21 days after.

Question 32

What is the default expiry rule for notice dates?

Answer 32

A notice expires on the same calendar date it was served.

For example, a six-month notice served on January 1 expires on July 1.

Question 33

What is the corresponding date rule for leap years and month ends?

Answer 33

A notice served on the last day of a month will expire on the last day of the corresponding month

(e.g., August 31 notice expires on February 28 or 29 in leap years).

Question 34

Who is the competent landlord for s.25 and s.26 procedures?

Answer 34

Both s,25 and s.26 need the procedure as between the tenant and a competent landlord

The competent landlord is the first in the chain with a reversionary interest exceeding 14 months, which may not always be the immediate landlord.

Question 35

How is SDLT calculated on a freehold commercial property?

Answer 35

0% on first £150,000
2% on next £100,00
5% above £250,000

Note for SDLT on freeholds you use up each band.

Question 36

How is SDLT calculated on a the grant of a commercial lease?

Answer 36

Calculated using the NPV (Net Present Value)

up to £150,000 at 0%
£150,000 - £5m @1%
£5m+ @ 2%

Note for SDLT on freeholds you use up each band.

For example, NPV of £5,100,000 = £150,000 @ 0%. £4,850,000 @ 1% = ££48500. £100,000 @ 2% = £2000. Total SDLT = £50,500.

Question 37

What is Annual Tax on Enveloped Dwellings (ATED) and when is it payable?

Answer 37

Annual tax payable by companies that own UK residential property valued at more than £500,000.

Question 38

If the commercial contract (SCPC) does not contain special conditions in relation to VAT, what is the VAT treatment on the purchase price upon completion?

Answer 38

The Standard Conditions provide that the purchase price is deemed to be exclusive of VAT and VAT on it is payable by the buyer.

Question 39

When is NPV relevant for SDLT purposes?

Answer 39

NPV is relevant only on the grant of a new lease. NPV is not relevant on the assignment of an existing lease

Question 40

Which repairing covenant would usually be the least onerous for the tenant?

Answer 40

To maintain the demised premises to their current standard of repair.

Question 41

How can you keep terms of a lease confidential?

Answer 41

Make an application to HM Land Registry for the filed copy lease to be designated an exempt information document, with the relevant terms redacted.

Question 42

When can a lease be made an exempt information document at HM Land Registry?

Answer 42

If it contains ‘prejudicial information’ including information that, if disclosed to other persons (whether to the public generally or specific persons) would, or would be likely to, prejudice the commercial interests of the applicant for designation.