SGS 7: Security of tenure

Question 1

When are landlords able to terminate commercial leases?

Answer 1

If they can prove that one or more grounds specified by the 1954 Act exist

Question 2

Can the 1954 Act be excluded by the parties?

Answer 2

YES (s38A), provided that the parties agree prior to the grant of the lease

Question 3

What are the two procedures that may be followed to exclude 1954 Act protection from a new lease?

Answer 3

1) Landlord serves a warning notice on the tenant, giving at least 14 days notice before the tenant becomes bound to enter into the lease, stating that the 1954 Act will not apply. The tenant must then make a simple declaration confirming its receipt and understanding of the warning notice, and that it understands/accepts the consequences.
2) Where time is short, the notice period can be waived but tenant must make a statutory declaration in front of an independent solicitor confirming that it has recieved the warning notice and accepts the consequences
(For both, lease must contain a clause stating that security of tenure is excluded)

Question 4

Termination by landlord - what notice

Answer 4

• Landlord may serve a notice under s.25 to terminate the 1954 Act lease

Question 5

When may a s.25 notice not be served?

Answer 5

If a s.26 request has already been served by the tenant (s.26(4))

Question 6

What is the form of the s.25 notice?

Answer 6

Must be in the prescribed form (s.25(1)) and served by the competent landlord (s.44)

Question 7

Timing of serving a s.25 notice

Answer 7

Must be served on the tenant not more than 12 nor less than 6 months from the specified termination date (for the current lease) which is set out in the s.25 notice (s.25(2))

Question 8

What is the specified termination date?

Answer 8

The date you would specify in the notice, and which may either be the CED or a date later than that, depending on when you have served the notice. The specified termination date can never precede the contractual expiry date of the lease (s.25(4))

Question 9

What is hostile notice?

Answer 9

The landlord is unwilling to grant a new lease. Will have to fight in court. The s.25 notice must specify the s.30(1) grounds of opposition that the landlord is relying on (s.25(7))

Question 10

What is friendly notice?

Answer 10

The landlord is willing to grant a renewal lease after termination of the current lease. This may be to take advantage of an increase in market rent. The notice must set out the landlord’s proposals for the terms of the renewal lease (s.25(8))

Question 11

What happens after the s.25 notice is received?

Answer 11

The landlord or tenant can apply to court.

(i) The tenant would apply for a court order for the grant of a renewal lease (s.29(1))
(ii) If the landlord served a ‘hostile’ s.25 notice, the landlord would apply for a court order for the termination of the protected lease without the grant of a renewal lease (s.29(2)) and must establish its s.30(1) grounds to the court’s satisfaction (s.29(4))

Question 12

What is the deadline for the court application after a s.25 notice? Can it be extended?

Answer 12

The specified termination date (s.29A(2)(a))
The parties can extend this deadline with a view to agreeing matters themselves (s.29B). If the parties subsequently reach agreement on the terms of the renewal lease, the application may be withdrawn.

Question 13

What if no court application after a s.25 notice is made by the deadline?

Answer 13

The tenant loses the right to a new lease

Question 14

How can a tenant terminate the tenancy?

Answer 14

By serving a s.27 notice at least three months before its intended leaving date (s.27(1)). Alternatively, the tenant may simply vacate by the CED, in which case no notice is strictly necessary

Question 15

What should a tenant do if it considers that it may need to leave part way through the term of its lease?

Answer 15

When negotiating the lease it should ask for a break clause to give X months notice, or sublet to minimise liability, or underlet the premises.

Question 16

What protection does s.24(1) give the tenant?

Answer 16

(i) A protected lease will not end on its CED. The tenant has the right to hold over/stay in occupation of the leased premises after the CED and the lease will continue until it is ended by service of a s.26 notice
(ii) The tenant also has the right to hold over and apply for a new lease –> the tenant has the right to apply to court for an order for the grant of a new lease of the leased premises

Question 17

When can a s.26 request be served?

Answer 17

Before or after the CED provided:
(i) The proposed commencement date specified in the request is not less than six months and not more than 12 months from the date that the request is served; and
(ii) the proposed commencement date in the request does not precede the CED (the proposed commencement date is effectively the date on which the s.26 request expires)
[**in exam identify today’s date, the CED and the best date for the PCD]

Question 18

What are the four steps to considering whether a s.26 notice can be given?

Answer 18

1) Does the LTA 1954 apply?
2) Is the tenancy excluded?
3) Is the lease contracted out?
4) Have any notices already been served (i.e. has the landlord already served a s.25 notice?)

Question 19

What are the requirements for the service of the s.26 notice?

Answer 19

• s26(3): the notice must be in a prescribed form
• s.44: must be served on the competent landlord
• s.26(3): must set out the tenant’s proposals for the terms of the new lease + the proposed commencement date (PCD) of the new tenancy

Question 20

What is the risk to the tenant of serving the s.26 notice on the latest date for service possible for their chosen PCD?

Answer 20

In the meantime, the landlord may serve a s.25 notice with a STD that is 12 months from the date of service (the latest possible STD)

Question 21

What can the landlord do after receiving a s.26 request?

Answer 21

May serve a counter-notice on the tenant within 2 months of the date of service of the s.26 request - indicating whether or not he will oppose a new lease. The counter-notice must set out the s.30(1) grounds of opposition which the landlord is relying on (s.26(6)

Question 22

What happens after notice is served on the landlord?

Answer 22

Either party can apply to court (usually the tenant, who has more to lose if no court application is made because it loses the right to renew its lease).

Question 23

What is the earliest date to apply to the court after s.26 notice is served?

Answer 23

Earliest date of:

• after the landlord responds
• 2 months after service

Question 24

What if the landlord does not serve a counter notice within 2 months of the tenant’s s.26 request?

Answer 24

It cannot oppose the grant of a renewal lease to the tenant, but can still negotiate on the terms of the renewal lease

Question 25

What is the deadline for the court application?

Answer 25

The day immediately before the PCD set out in the s.26 request. This can be extended by agreement between the parties

Question 26

What if the landlord is willing to grant a renewal lease?

Answer 26

The tenant should still apply to the court to protect its right to a renewal lease. The court will determine the terms of the renewal lease

Question 27

What will the rend of the renewal lease be?

Answer 27

A market rent so if market rents have fallen the rend of the renewal lease will be less than the rent under the tenant’s existing lease

Question 28

Case on terms of renewal lease

Answer 28

O’May v City of London Real Property Co Ltd: The terms of the current lease are the starting point for the renewal lease. It is for the party who wishes to change the existing terms to justify the change by reference to changes of circumstances

Question 29

How should the tenant protect the court application following s.26 notice?

Answer 29

With a unilateral notice lodged against the landlord’s registered title at the land registry (then any TP purchasing the freehold will be bound)

Question 30

Where are the grounds of opposition (required for s.25 notice or s.26 counter notice)

Answer 30

s.30(1)

Question 31

What proves a firm and settled intention to redevelop?

Answer 31

Having spoken to building contractors about the works

Question 32

What should you consider re alternative accommodation?

Answer 32

• Alternative premises must be suitable for the tenant, having regard to the nature/class of its business and taking account of goodwill
• Consider whether the alternative premises are in a suitable location
• The size of the premises is irrelevant if it is in an unsuitable location

Question 33

To consider for intention to demolish/reconstruct:

Answer 33

• Firm and settled intention e.g. has obtained planning permission
• Possession of the whole required
• Substantial works of construction on the holding or part of it

Question 34

To consider for occupying the building

Answer 34

Can’t rely on it if the landlord purchased his interest less than 5 years before the specified termination date

Question 35

How is compensation calculated?

Answer 35

• s.37(2)(b): < 14 years, 1 x multiplier (of 1) x rateable value
• s.37(2)(a) and 37(3): 14 years or more - 1 x multiplier (of 2) x rateable value
• Rateable value figure will be provided in the exam

Question 36

Can statutory compensation be excluded?

Answer 36

No - s.38(2)
Exception: an agreement to exclude or modify the right to statutory compensation will not be void if, at the date of quitting, the tenant has been in occupation fo the purpose of its business for less than 5 years