Unit 5 – Lease Termination & Security of Tenure

Question 1

What are the ways to ‘determine’ (i.e., end) a lease at common law?

Answer 1

1) Effluxation of time
2) Notice to quit
3) Surrender
4) Merger

Question 2

1) Effluxion of time

Answer 2

With a fixed-term lease, when the contractual terms ends, the lease automatically determines by what is known as ‘effluxion of time’.

– No notice is needed.

– Most leases of commercial property are fixed-term leases.

Question 3

2) Notice to quit

Answer 3

I.e., as with periodic tenancies, which are determined by the appropriate period’s notice to quit given by landlord or tenant.

 Yearly tenancy = at least 6 months’ notice expiring at the end of a completed year of the tenancy.

 Other periodic tenancies = determined by one full period’s notice (i.e., one quarter, month etc) expiring at the end of a completed period of the tenancy.

Question 4

3) Surrender

Answer 4

Where the landlord and tenant agree to terminate a lease prior to its expiry (express surrender) or where surrender of the lease is inferred by conduct. On surrender, the lease is said to merge in the landlord’s reversion and is extinguished.

 To be legal, an express surrender is documented with a deed of surrender.

Question 5

4) Merger

Answer 5

Merger can occur in one of two ways:

1. Occurs where the tenant acquires the immediate reversion to the lease (i.e., acquires the landlord’s estate in land). It is the opposite of surrender.
2. Third party acquires both lease & reversion

Question 6

What is the effect of the 1954 security of tenure act?

Answer 6

If a tenancy comes within the ambit of the 1954 Act, the common law methods of termination may not apply.

– A tenancy protected by the 1954 Act can continue until it is terminated in accordance with the provisions of the Act. (e.g., a fixed term business lease will not necessarily end at the expiration of the fixed term).

– Even then, the tenant has a right to apply to court for a new tenancy which can only be opposed by the landlord on one of the 7 statutory grounds contained in s 30.

Question 7

When does the 1954 Act apply?

Answer 7

Requirements for the act to apply:

– Must be a tenancy (not a licence) of a property for more than 6 months (or with a provision allowing for renewal);

– Which is occupied by the tenant (personally or through the medium of an agent or manager)

– For business purposes.

Question 8

Businesses / tenancies not protected by the act..

Answer 8

 Tenancies at will.

 Fixed-term tenancies under six months.

 Landlords cannot circumvent the 1954 Act by granting a succession of six-month tenancies: if the tenant has already been in occupation for more than 12 months when another lease is granted, that tenant will gain protection of the Act even if the new lease is for six months or less.

 If a tenancy does not exceed six months but contains a provision allowing renewal or extension of the term beyond the six months, then the tenancy will be protected by the Act.

 Business leases for agricultural holdings, farm business tenancies and mining leases are expressly excluded from the protection of the 1954 Act.

 Fixed-term tenancies which are contracted out of the 1954 Act.

 The landlord and tenant can agree for T not to be protected by the act. But for this to be effective, a statutory notice procedure must be strictly followed before the start of the lease.

Note – A landlord who wants to let the property without giving T security of tenure must consider one of these exclusions.

Question 9

What is the statutory notice procedure necessary to disapply the act by agreement of both parties?

Answer 9

 L must give T notice warning T that they are agreeing to a lease without security of tenure and advising them to obtain professional advice.

 T must make a declaration in a prescribed form that they have received the notice and agree that the lease should be contracted out.

 Lease should be granted at least 14 days after the occupier has received the notice. Otherwise ⤵️applies.

 If T is given notice less than 14 days before the grant of the lease, T’s declaration must be made in the form of a statutory declaration before an independent solicitor.

 A reference to the service of the notice and T’s declaration must be contained or endorsed on the lease itself.

Question 10

Effect of 1954 Act..

Answer 10

S 24 = the tenancy will continue until terminated in accordance with the 1954 Act and the tenant has a right to apply to the court for a new tenancy which can only be opposed by the landlord on one of the seven statutory grounds:

Question 11

What are the 7 statutory grounds for termination / opposition to tenancy renewal under the 1954 Act?

Answer 11

1) By the service of a landlord’s notice under s 25

2) By the service of a tenant’s request for a new tenancy under s 26

3) Forfeiture

4) Surrender

5) In the case of a periodic tenancy, by the tenant giving the landlord a notice to quit

6) In the case of a fixed-term lease, by the tenant serving three months’ written notice on the landlord so long as notice does not expire before the contractual expiry date

7) In the case of a fixed-term lease, by the tenant ceasing to be in occupation for business purposes at the end of the lease under s 27(1A).

 S 27(1A) enables the tenancy to end by effluxion of time where T ceases to be in occupation for business purposes at the end of the lease.

 Periodic tenancy = S 27 1954 Act allows T to serve a notice to quit on L but L cannot serve a notice to quit on T.

 Fixed-term tenancy = S 27 allows T to serve a notice on L to end the fixed-term tenancy but L does not have the same right.

 Only common law termination forms allowed by the 1954 Act are forfeiture, notice to quit and surrender.

Question 12

Termination by Landlord under section 25 notice

Answer 12

Procedure:

• Landlord must serve a s 25 notice on the tenant.
• Landlord must indicate its proposals as to the terms of the new lease in the s 25 notice.
• If the landlord opposes the renewal of the tenancy, the s 25 notice must state the s 30 grounds.

Date/time for serving notice:

• S 25 notice must state date which the landlord wants the tenancy to end. This date cannot be earlier than the date the tenancy could have been terminated under common law (e.g., cannot be earlier than expiry of a fixed term).
• S 25 notice has to be served no less than six months and no more than 12 months before the termination date specified in the notice (i.e., between 6 and 12 months)

Question 13

Date / timing for serving S 25 notice?

Answer 13

Between 6 and 12 months before the termination date specified in the notice.

Question 14

If the landlord will oppose the grant of a new tenancy (as stated in its s 25 notice) what must the tenant do and when?

Answer 14

Apply to the court before the expiry of S 25 notice. If they do not, they will lose their rights under the 1954 act.

Question 15

Should the landlord pre-empt the tenant’s application to the court?

Answer 15

Yes – can apply to the court to terminate the lease on grounds stated in its s 25 notice (but not if an application has already been made by T)

Question 16

What is Renewal lease by tenant S 26 request?

Answer 16

S 26 Request = Brings the current tenancy to an end and constitutes a request for a new tenancy.

Question 17

When should a tenant file a S 26 request?

Answer 17

When they wish to remain in the property after the contractual expiry date.

Question 18

Formalities for S 26 request =

Answer 18

• S 26 request must state date on which tenant wants the new tenancy to begin;
• Must contain the tenant’s proposals for new tenancy.
• Must adhere to same time limits as the landlord serving a s 25 notice. (i..e, between 6 and 12 months of the end date of the contract)

Question 19

If L wants to oppose the grant of a new tenancy, when must it serve counter-notice on the tenant?

Answer 19

Within 2 moths of service of T’s S 26 request.

Question 20

What should be in L’s counter-notice?

Answer 20

 Counter-notice must state the s 30 grounds of opposition.

 After L has served counter notice, T must apply to the court for a new lease or they will lose their rights under the 1954 Act.

 Application to court must be made prior to the commencement date of the new tenancy specified in the tenant’s s 26 request, unless landlord agrees extension of time limit.

Question 21

What are the S 30 grounds (landlord’s opposition grounds)?

Answer 21

The s 30 grounds are as follows:

(a) Tenant’s failure to repair
(b) Tenant’s persistent delay in paying rent
(c) Tenant’s substantial breach of other obligations
(d) Landlord has offered alternative accommodation (which must be suitable to T’s needs and on reasonable terms).
(e) Tenancy is an underletting or part
(f) Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession
(g) Landlord intends to occupy the holding for its own business or as a residence.

Question 22

Grounds a) b) c) and e) are..

Answer 22

• Are all discretionary, i.e., the court will decide whether or not to allow the tenant a new lease.
• As well as establishing the ground, the landlord will need to show that the tenant ought not be granted a new tenancy in view of the facts giving rise to the ground.

Question 23

Grounds d) f) and g)

Answer 23

• Are mandatory where the landlord has to prove that it has offered alternative accommodation or intends to occupy itself.

Question 24

Ground g) Landlord intends to occupy the holding for its own business or as a residence

Answer 24

– Landlord cannot rely on this ground unless they have owned their interest for at least five years before the ending of the current tenancy.

– Landlord must have a firm and settled intention and must demonstrate at the date of the court hearing that it has considered and taken practical steps to occupy the property.

– Landlord must also have a reasonable prospect of achieving its intention, although it does not have to show that its business will be a success in that location.

Question 25

Ground F) Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession

Answer 25

• Landlord must show that, on the termination of the tenancy:

1. It has a firm and settled intention to carry out the relevant work (e.g., that it has obtained the necessary planning permission and the financial arrangements are in place); and
2. It intends to demolish or reconstruct the premises (or substantial part of them),, or to carry out substantial works of construction on the holding or a part of it; and
3. It cannot reasonably carry out the work without obtaining possession (i.e., the landlord will not succeed if the tenant agrees to allow the landlord access to carry out the work, which can then be reasonably carried out without obtaining possession and without substantially interfering with the tenant’s use).

Question 26

The tenant is only entitled to the ‘holding’ (the property comprised in by the current tenancy, exclusing any part not occupied by the tenant.

Answer 26

• Landlord has the right to insist that any new tenancy will be a tenancy of the whole of the originally demised property, including those parts underlet.

Question 27

What will the terms of the new lease be udner S 1954 Act?

Answer 27

• Terms of new lease will be such as is reasonable in the circumstances but cannot exceed 15 years.
• Term will not commence until 3 months after the proceedings are ‘disposed of’ (‘disposed of’ = when the time limit for appeal has elapsed, so four weeks after the order).
• New lease, then, commences 3 months and 4 weeks after the order.
• Rent = the open market rent, having regard to the other terms of the tenancy. In assessing this, the court must disregard:

1. The fact that the tenant and their predecessors have bene in occupation;
2. Any good will attached to the holding;
3. Any effect on rent of any improvements voluntarily carried out by the tenant during the tenancy; and
4. In the case of licensed premises, any addition in value due to the tenant’s licence.

Question 28

Can T object to the new terms set by the court?

Answer 28

Yes, and can apply for them to be revoked.

Question 29

Can L object to the new terms set by the court?

Answer 29

No. They can only apply for appeal.

Question 30

Compensation

Answer 30

• If L successfully opposes the grant of a new lease solely on one or more of the no fault grounds (i.e., (e), (f), or (g), the tenant will not be granted a new lease but will be entitled to compensation.

Question 31

How much compensation?

Answer 31

• Amount of compensation = equivalent to the rateable value of the holding, unless the tenant and their predecessors in the same business have been in occupation for at least 14 years, when it will be twice the rateable value.
• Any agreement restricting or excluding the payment of compensation is void if the tenant or their predecessors in the same business have been in occupation for five years or more.

 This means that the clause commonly found in leases contracting out of the obligation to pay compensation will only be enforceable where the tenant has been in occupation for fewer than 5 years.