Security of tenure under the Landlord and Tenant Act 1954 Part II

Question 1

The Landlord and Tenant Act 1954 gives business tenants in certain situations security of tenure. Where they have acquired this protection, it means that:

Answer 1

They can continue in occupation past the contractual term of the lease (ie, what was agreed between the parties)

· They can apply to the court for a new tenancy to be granted.

Question 2

How do you acquire security of tenure?

Answer 2

Not all tenancies acquire security of tenure. It must meet the following conditions:

· It must be a lease, not a licence or tenancy at will.

· The tenant must occupy at least part of the premises. If the premises are left permanently empty, then they cannot acquire security of tenure. Note also that if the tenant has underlet the whole of the premises, then the tenant does not have security of tenure.

· It must be used for the purposes of a business (a trade, profession or employment).

Purposes of a business is interpreted quite widely. Sports clubs and charities can qualify.

The following tenancies do not have security of tenure:

· Tenancies of 6 months or under

· Service tenancies

· Mining tenancies

Question 3

Why might a the landlord want to exclude security of tenure?

Answer 3

· If the landlord knows that they will want the premises back at the end of the contractual term to redevelop the property or for any other reason.

· If the landlord and tenant agree a lease with a short contractual term (less than 10 years), then it is likely that the landlord will want to exclude the security of tenure provisions.

· An undertenant’s lease will usually be excluded.

It is not difficult to contract out, but the procedure must be followed strictly. A notice must given to the tenant in prescribed form, and then the tenant must give a declaration to the effect that they understand the implications of excluding the security of tenure provisions.

If the notice is given more than 14 days in advance, then the tenant can sign an ordinary declaration. If, as is more common, the notice is given just before completion, the tenant must make a statutory declaration before a solicitor.

The lease itself must state that the security of tenure provisions have been excluded, and refer to the notice and declaration or statutory declaration (as appropriate).

A contracted-out lease will end on the contractual expiry date, and the tenant has no right to stay in the premises beyond that, nor to require a renewal lease

Question 4

How can a protected tenancy be brought to an end?

Answer 4

The tenant may wish to leave the premises at the end of the contractual term, and they may do so. If they do, then the lease comes to an end.

However, they do not have to leave, and if they stay, then they do so on the terms of the lease. This is called holding over.

The lease will usually provide that if the tenant falls behind with rent (say over 21 days) or is in breach of its covenant or is made insolvent, then the landlord may forfeit the lease. This means that the landlord can re-enter the premises and bring the lease to an end. This applies equally whether or not the lease is protected.

Question 5

Friendly Section 25 notice

Answer 5

A “friendly” section 25 notice indicates that the landlord is willing to grant a new tenancy. If so, the proposed terms of the tenancy will be set out in the notice.

Once this notice has been served, either the landlord or the tenant can apply to the court for the new tenancy. However, they will generally try to agree the terms between themselves first to avoid unnecessary costs.

They must make this application before the Date of Termination (DOT), but they can agree to extend the time limit between themselves, which means that they do not need to make a court application just because they are still negotiating.

Question 6

Hostile section 25 notice

Answer 6

This is similar to the friendly section 25 notice in that it gives notice to bring the tenancy to an end on the specified date (again the DOT).

However, in this case, the landlord indicates that the landlord is opposing the grant of a new tenancy.

The landlord may only oppose the grant of a new lease on specified grounds.

Question 7

Landlord’s grounds for opposing nre tenancy - mandatory grounds

Answer 7

· The landlord is making suitable alternative accommodation available to the tenant. This must be reasonable, having regard to the tenant’s business and goodwill.

· The landlord intends to demolish or reconstruct the premises or a substantial part of it, and cannot do this without obtaining possession.

· The landlord intends to occupy the premises for its own business or residence. They must show a firm and settled intention. This is subject to a five year rule

Question 8

Landlord’s grounds for opposing new tenancy - discretionary grounds

Answer 8

The discretionary grounds are:

· A serious breach by the tenant of a repairing obligation

· Persistent delay by the tenant in paying the rent – this must be serious and persistent

Question 9

Section 26 notice

Answer 9

This is different to the section 25 notice in that the tenant specifies a date for the proposed start of the new tenancy. The notice will set out the tenant’s proposals for the terms of the new tenancy. It is also needs to be in the prescribed form. The existing lease will terminate the day before the start of the new tenancy.

Again, the parties need to apply to the court before the DOT if they cannot reach agreement, but again, they can agree to extend the deadline.

If the landlord objects, they can serve a counter notice to the section 26 notice – similarly with a hostile section 25 notice, they must set out the grounds on which they are opposing a new tenancy.

Question 10

Tenant’s Section 27 notice

Answer 10

This is used by the T when want to terminate tenancy and not renew and do not want a new tenancy. Unlike the other two notices, this is not in prescribed form, and could take the form of a letter.

The tenant can, of course, leave the premises on the expiry of the contractual term under their existing lease, but as soon as they start holding over, they must serve a section 27 notice (unless a section 25 notice has been served).

Question 11

Why is security of tenure important to some tenants?

Answer 11

They can invest in the property and their business knowing that the premises are likely a long term prospect.

· They know that they will be able to continue to pay a market rent. Otherwise, a landlord might take advantage of their investment in the premises to demand a higher than market rent.

· It gives tenants the confidence that they can reap the benefit of any goodwill they build up at their location.

Question 12

Application of the 1954 Act: ‘business tenancies’ meaning

Answer 12

A business tenancy is a tenancy where the property is occupied by the tenant for the purpose of carrying on as business

Tenancy = Must have the essential characteristics of a lease - certainty of term and exclusive possession - Licenses are not included

Occupation = the tenant must occupy the premises to have security of tenure - subletting the whole will therefore remove this right

Business = any business count, people can stay in the property on a residential basis, but the business must still be a significant purpose of the lease

Question 13

When does the 1954 Act apply? Can you contract out?

Answer 13

Applies automatically to most commercial leases, unless the landlord and tenant expressly contract out before exchange of the lease (periodic tenancy not included)

to do this:

• LL must service notice on T at least 14 days before exchange - known as warning notice
• T must make a declaration - a simple declaration if the notice has been give more than 14 days before the entry into the lease
• if notice less than 14 days, a signed statutory declaration stating they have received this + accepted the consequences of the notice
• Lease must contain a clause stating that security of tenure has been excluded AND must be directly reference L’s warning and T’s declaration

Question 14

Protection under the 1954 Act

Answer 14

1. a commercial lease will continue after the contractual end date until terminated by one of the ways set out in the 1954 act
2. business tenants have a right to apply for a new tenancy on termination of the current tenancy

Question 15

Termination of tenancy under the 1954 Act (3 different notices)

Answer 15

1) Landlord’s s25 notice
2) tenant’s s26 notice
3) tenant’s s27 notice

Question 16

Landlord’s s26 notice

Answer 16

Notice to T ending the current tenancy on a date specified in the notice

L must inform T whether they will oppose (hostile notice - with grounds) or not oppose (friendly notice) T’s application for a new lease

T then applies for a right to renew

Question 17

Tenant’s s26 notice

Answer 17

T’s notice terminates the current tenancy and requests a new one starting on a specified date

It must also set out the key terms of the new lease

it must be in a statutory prescribed form

Question 18

Hostile notice - compensation

Answer 18

If L is successful in opposing the tenancy, then compensation is payable unless either the ground is based on the tenant’s fault (serious breach, etc) or the tenant has been offered suitable alternative accommodation.

Compensation is a sum equal to the rateable value, or if the tenant has been in occupation for 14 years or more, twice the rateable value.

The award of compensation cannot be excluded or reduced unless the tenant has only been in occupation for less than 5 years.

The court can award further compensation if it later turns out that the landlord has obtained possession based on misrepresented or concealed facts.

Question 19

Whats the main difference between discretionary and mandatory grounds in hostile notices?

Answer 19

Discretionary grounds: Even if L proves them, court can still grant new tenancy to T

Mandatory grounds: if L proves them, no new tenancy can be granted

Question 20

What if L wants to terminate the lease but T wants to stay on

Answer 20

• L may want to determine the lease and get a new one to take advantage of increased rents

-notice does not contain grounds of opposition. It must state that a new tenancy is not opposed and include proposals, for a new lease

• an application must still be made to court in the same way as for hostile notice and within the same timeframe. This application is made for a new lease, instead of applying for termination

T must always apply to court to secure the right of renewal. T must apply by the specified end date in the notice

Question 21

If the court grants a renewal lease and the parties cant agree on the terms of the new lease, the court steps in..

(clause and term imposed by court)

Answer 21

Property - the property occupied by the tenant as in the current tenancy

Duration - court decides this, but cannot be for more than 15 years

Rent - Market value, subject to disregards. Court can insert a rent review clause

Term commencement date - 4 weeks after the court order (to allow time for appeal) + 3 months