Property (Leasehold) - Statutory Protection (6) Flashcards
What is the statutory protection?
Statutory Protection: Certain commercial leases benefit from statutory protection from common law termination, known as security of tenure (s24 Landlord and Tenant Act 1954).
How are leases protected?
Protected Leases: Security of tenure is provided to specific tenancies occupied for the purposes of business. Rather than ending by effluxion of time, they will continue indefinitely on the same terms until properly terminated or renewed.
(1) Tenancies: A commercial lease of more than 6 months.
>Protection granted if lease permits default extension beyond 6 months.
>Protection granted if predecessor in same business occupied for >2x6 month periods.
>Protection not granted to tenancies at will.
(2) Occupation: Tenant or their employer must be in occupation for purposes of business, or let to a business.
(3) Purposes of Business: An activity carried on by a body of persons.
>Includes businesses, trades, social clubs etc.
>Does not include agricultural, farming or mining practices.
What is contracting out?
Contracting Out: Tenants of eligible fixed-term leases may contract out of protection prior to completion.
(1) Landlord Notice: Landlord must provide notice in a prescribed form, and urge tenant to seek legal advice.
(2) Tenant Declaration: Tenant must declare their agreement in a prescribed form.
Short Notice: If given in the 14 days preceding completion, declaration is made before impartial solicitor.
(3) Record in Lease: The notice and declaration must be recorded in the lease itself.
What are the retain common law ways of terminating a lease?
Retained Common Law Termination: Protected leases can still be subject to three common law methods of termination.
(1) Forfeit: Forfeit by forfeiture clause.
(2) Surrender: Termination by mutual agreement.
(3) Effluxion: Termination by expiry of original term, if tenant ceases to be in occupation for business purposes on or before date of expiry.
What rights does a tenant have?
Rights of Tenant: The tenant has greater rights than the landlord to terminate or renew their lease.
Termination
Termination: The tenant can terminate by:
(1) Periodic: Serving notice of intention to quit of at least one full period.
(2) Fixed: Serving at least 3 months written notice to quit, provided this is no earlier than the fixed expiry date (s27).
Renewal
Renewal: The tenant can request to renew the lease on new terms (s26).
(1) S26 Request: Tenant must serve notice of intention to renew, alongside proposed terms, on landlord. The intended renewal date must be between 6-12 months of service.
>Intended renewal date can be no earlier than the fixed expiry date.
(2) Response: The Landlord can enter into negotiations, or serve a counter notice.
Negotiations: Landlord and tenant attempt to negotiate the new lease.
Counter Notice: Landlord states statutory grounds of objection (s30) within 2 months of receipt.
(3) Court Order: Tenant may apply to County Court to order renewal (unless landlord has preemptively applied to court to terminate lease).
What are the rights of landlord?
Rights of Landlord: Landlords have fewer rights to renew or terminate the lease. Both involve the same process.
(1) S25 Notice: Landlord must serve intention to renew, alongside proposed terms, or terminate, on tenant. The notice has to be served within 6-12 months of the termination date specified in the notice.
>This can be friendly, where the landlord is willing to negotiate.
>This can be hostile, where the landlord opposes renewal (on s30 statutory grounds).
(2) Response: The Tenant can accept renewal or termination, or apply to the court to seek renewal on its terms.
(3) Court Order: Landlords can preemptively apply to court to terminate or renew the lease. Tenants must apply before the notice expires, else they may be bound, so it can be helpful to apply to court as a fail-safe.
What are the section 30 grounds?
Section 30 Grounds: Where landlords seek to terminate (s25) or oppose renewal (s26), they must rely on a Section 30 ground.
(1) Mandatory Grounds: There are 3 mandatory grounds, which always permit landlords to succeed (if evidenced).
(2) Discretionary Grounds: There are 4 discretionary grounds, which will only permit landlords to succeed if the court is justifiably compelled to award in favour. This can be a costly court process.
Mandatory grounds
Alternative Accommodation (D) - Landlord offers tenant suitable and reasonably priced alternative accommodation. Must be suitable to the tenant’s individual needs.
Demolition/Reconstruction (F) - Landlord requires vacant possession to demolish or reconstruct the property.
Landlord Reoccupation (G) - Landlord intends to reoccupy the property for their own business or for personal residence. If landlord purchased the existing lease in the previous 5 years, and it was not vacant, they cannot exercise.
Discretionary grounds
Failure to Repair (A) - Tenant failed to adhere to repair covenant.
Failure to Pay Rent (B) - Tenant persistently missed rent payments.
Substantial Breach (C) - Tenant substantially breached other covenants.
Underletting of Part (E) - Tenancy is an underletting of part.
What is non-fault compensation?
Non-Fault Compensation: Tenants are owed compensation if the lease is terminated, or renewal objected, on a no fault ground (unless a fault ground is also made out).
(1) No Fault Grounds: Underlet (E); Demolition/Reconstruction (F); Reoccupation (G).
(2) Rate of Compensation: Compensation is awarded at the rateable value of the property.
>Rateable value is one year’s rent using open market valuation.
(3) Long Rate of Compensation: Compensation is awarded at twice the rateable value of the property if the tenant or their predecessors in business occupied it for at least 14 years (two years’ open market rent).
(4) Lease Restriction Clause: The lease may exclude or restrict compensation. However, these clauses lose effect once the occupation reaches 5 years.
What is a court ordered lease?
Court Ordered Lease: Where the court orders renewal, and the parties cannot agree on new terms (as preferred), the court will draft the new lease itself. Typical elements include:
(1) Tenancy of Whole: Landlord can insist on a tenancy of whole (underlets must be extinguished in advance).
(2) Reasonable Term: Lease term will be reasonable in the circumstances, and cannot exceed 15 years.
(3) Commencement Date: Commencement is 3 months from final disposal of hearing (end of appeal period, which is 4 weeks after order).
(4) Reasonable Rent: Rent is usually ‘open market’, based upon terms of extinguished tenancy.
>Court disregards occupation, goodwill, voluntary improvements of tenant, and effect of a trading licence.
(5) Rent Review: Courts may insert a rent review clause, even if absent in the previous lease.
(6) Other Terms: Courts will fix all other terms with reference to the current tenant and all relevant circumstances.
>Usually the same terms as before.
Right of Appeal
Right of Appeal: Both parties can appeal the court ordered lease. The tenant can apply for an ‘order of revocation’.
