Property Practice - Security of Tenure for Commercial Leaseholds Flashcards
Security of Tenure
- Protection for tenants to remain in premises at end of tenancy
- Commercial tenants have added protection under Landlord and Tenant Act 1954
Landlord and Tenant Act 1954
- If 1954 Act applies to a business tenancy the tenant has security of tenure and is not required to leave at the end of the tenancy
- Does not apply to residential tenancies
If business tenancy is protected
Tenancy will automatically continue unless brought to an end by:
- Forfeiture: if tenant in breach
- Surrender: parties agree to give up the lease
- Landlord serves section 25 notice
- Tenant serves section 26 notice on landlord to request new lease
Exclusions from 1954 Act
- Fixed-term tenancies which don’t exceed 6 months
- Service tenancies
- Business tenancies which are contracted out of the 1954 Act: parties agree to contract out of the protection offered by the Act
Requirements for Contracting Out
- Landlord serves health warning notice: explains to tenant what security of tenure is and that the tenant will be giving up those rights if they agree to contracting out, reminds tenant to seek professional advice, should be served at least 14 days before tenant completes the lease
- Health warning can be served less than 14 days before tenant completes the lease if the tenant signs declaration in front of solicitor that they are waiving the 14-day notice period
- Tenant must sign a declaration confirming they have received health warning and agree to contracting out (need not be signed in front of a solicitor)
- Lease contains reference to health warning, tenant’s declaration and parties agreement to contracting out
- If lease is contracted out the tenant does not have the automatic right to remain in the property
Section 25 Notice
If landlord wants to re-gain possession of premises at end of term or wishes to enter into new lease section 25 notice should be served
- Must be served 6-12 months before landlord wishes to bring existing tenancy to an end
- Must specify statutory ground to re-claim possession:
a) Failure to carry out repairing obligations
b) Persistent delay in paying rent
c) Substantial breaches of other obligations
d) Availability of other suitable accommodation
e) Landlord requires the whole property for subsequent letting (if part being sublet)
f) Demolish or reconstruct the premises and cannot do so with tenant in occupation
g) Intends to occupy the whole building
Grounds a, b, c and e are discretionary and grounds d, f and g are mandatory
If landlord cannot establish an opposition ground the court will grant a new lease
Section 26 Notice
Request for landlord to grant a new lease
- Must be served between 6 and 12 months before the tenant wishes for new tenancy to start
- Landlord has 2 months to notify tenant whether they will oppose
- If landlord wishes to oppose the request they must specify statutory ground
- Tenant may be entitled to compensation if lease does end due to no fault of their’s (calculated using a statutory formula)
If the landlord opposes the tenant’s appliction or the terms of the new lease agreement cannot be agreed the court will get involved
If the parties cannot agree the new term of the lease the maximum fixed term that a court can order is 15 years
Timeframes for Notice
- Section 25 and 26 notices: served 6-12 months before existing tenancy due to end
- Health Warning Notice: served 14 days before tenant completes the lease
Compensation
- If landlord establishes one of the no-fault grounds (e, f or g) the tenant is entitled to compensation
- If the landlord establishes one of the fault grounds (a, b or c) the tenant is not entitled to compensation
Calculation of compensation:
- If the tenant has occupied the premises for at least 14 years (or took over the business from someone else and the combined occupancy is at least 14 years): twice the ratable value of the holding
- Less than 14 years: ratable value of the holding
Ratable value is set by the UK Government
