SECURITY OFTENURE FOR COMMERCIAL TENANTS Flashcards
definition
Security of tenure deals with the right of a business tenant to stay in the premises at the end of the tenancy.
LANDLORD AND TENANT ACT1954 (PART II)
1.mThe Landlord and Tenant Act 1954 (Part II) (‘1954 Act’) gives statutory protection to a commercial tenant at the contractual end of their lease by providing that the tenant does not have to vacate the property unless the landlord uses one of the statutory methods of terminating the lease.
2.A tenancy protected by the 1954 Act will auto-matically continue at the end of the contractual term unless it is brought to an end in one of the following ways:
*Forfeiture by the landlord;
*Surrender (both parties agree to ‘give up’ the lease);
*The landlord serves a valid ‘Section 25 notice’ on the tenant to terminate the lease or suggest a new lease; or
*The tenant serves a ‘Section 26 notice’ on the landlord to request a new lease.
EXCLUSIONS FROM THE 1954 ACT
The 1954 Act does not apply to certain tenancies, including fxed term tenancies not exceeding six months, service ten-ancies, and contracted out tenancies.
Contracted Out Tenancies
- Under the 1954 Act, a prospective landlord and tenant can agree to exclude the security of tenure provisions from the tenancy that is due to be created. This process is known as ‘contracting out’ of the 1954 Act, and the resulting tenancy is a ‘contracted out tenancy.’
- To contract out, the landlord and
tenant must satisfy three statutory requirements—the land-lord’s health warning, the tenant’s declaration, and a refer-
ence in the lease to the requirements. - A failure to comply will render the contracting out void, meaning that the tenancy will be protected by the security of tenure provisions of the 1954 Act.
The Landlord’s ‘Health Warning’
- Before the tenancy commences, the landlord must serve on the potential tenant a ‘health warning notice.’ This notice has nothing to do with physical health but, rather, is a clearly writ-
ten statutory notice that explains what the security of tenure is, that the potential tenant will be giving up these rights un-der the lease, the consequences of not having these rights,
and that they should seek professional advice. - The notice should be served 14 days before the tenant completes the
lease.
Tenant’s Declaration
The tenant must sign a declaration confrming that they have received the health warning and further that they agree to contracting out of the Act and its consequences. This decla-
ration need not be signed in front of a solicitor.
Reference in the Lease
The lease must contain reference to:
*The health warning;
*The tenant’s declaration (or statutory declaration); and
*The agreement to contract out.
SECTION 25 NOTICE AND SECTION 26 NOTICE
A Section 25 notice is given by a landlord who wants to end or enter into a new lease with a tenant protected by security of tenure. A Section 26 notice is given by a tenant protectedby security of tenure who wants to enter into a new lease.
The Landlord’s Section 25 Notice
The Section 25 notice informs the tenant that the landlord re-quires the premises back at the end of the term, or that they wish to enter into a new lease with the tenant. The landlord
must serve the notice between** six and 12 months before **they wish the existing tenancy to end. The notice must spec-ify one of the statutory grounds upon which possession is claimed, which are:
a.The tenant’s failure to carry out repairing obligations;
b.The tenant’s persistent delay in paying rent;
c.The tenant’s substantial breaches of other obligations;
d.The availability of suitable alternative accommodation for the tenant;
e.(If part of the premises has been sublet by the tenant) The landlord requires the whole property for subsequent letting;
f.The landlord intends to demolish or reconstruct the premises and cannot do so with the tenant in occupation; or
g.The landlord intends to occupy the whole building.
Note: Grounds a, b, c, and e are discretionary, which means that even if the landlord establishes the ground, the court may decide to order a new tenancy in any event. Grounds d, f, and g are mandatory, meaning that if the landlord es-
tablishes the grounds, the court must refuse to order a new tenancy.
The Tenant’s Section 26 Notice
- The Section 26 notice is a request by the tenant for a new lease. It must be served on the tenant’s ‘competent landlord’ or agent and request that the landlord grant a new lease to the tenant (and outline the required terms).
- The tenant must serve the notice **between six and 12 months **before they
wish the new tenancy to start. - Upon receipt of this notice, the landlord has** two months** during which to inform the tenant
whether they intend to oppose the request. - If the landlord is unwilling to agree to a new lease, they must specify one of the statutory grounds listed above as the basis for their opposition.
COMPENSATION FOR THE TENANT
Fault or No-Fault Grounds
- If the landlord establishes one of the so-called ‘no-fault grounds’ (grounds e, f, or g), the tenant has a right to com-pensation from the landlord on quitting the premises.
- The basis for compensation is that the tenant is denied a tenancy through no fault of their own. If the landlord establishes one of the ‘fault grounds’ (grounds a, b, or c), the tenant has no
right to compensation. If the landlord can provide a suitable alternative accommodation (ground d), there is also no com-pensation because the tenant has not sufered any loss.
Calculation of compensation for tenants
If the landlord terminates on one of the following no-fault
grounds:
*The tenant sublets the premises and the landlord requires the whole of the premises for subsequent subletting (s30(e)),
*The landlord intends to demolish the building (s30(f)), or
*The landlord intends to occupy the whole building (s30(g)),
the tenant is entitled to damages computed as follows:
*If the tenant has occupied the premises **for at least 14 years (or took over the business from someone and their combined occupancy is at least 14 years), twice the rat-able value of the holding, or
*If the tenant has occupied the premises for less than 14 **years, the ratable value of the holding.
*The ratable value of a property is set by the UK govern-ment Valuation Ofce Agency.
NEW LEASE ORDERED BY COURT
If a new lease is ordered by the court because either:
the landlord has failed to establish an opposition ground;
orthe landlord does not oppose the tenant’s application,
then the new lease will normally be negotiated between the landlord and tenants’ solicitors. Once the new lease is agreed, the landlord and tenant should execute an original and counterpart in the usual way.
Key Provisions of New Lease
*Premises: Generally the new lease will comprise the
existing premises
*Term of the lease: The parties can agree the new term, but if they cannot agree, the maximum fxed term that a court can order is 15 years.
*Rent:
In default of agreement between the parties, the court can set the terms of the new lease, though this is rare. In this event, the new lease will not commence until **three months **after the court proceedings have ended.
