Unit 5 – Lease Termination & Security of Tenure Flashcards
What are the ways to ‘determine’ (i.e., end) a lease at common law?
1) Effluxation of time
2) Notice to quit
3) Surrender
4) Merger
1) Effluxion of time
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.
2) Notice to quit
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.
3) Surrender
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.
4) Merger
Merger can occur in one of two ways:
- 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.
- Third party acquires both lease & reversion
What is the effect of the 1954 security of tenure act?
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.
When does the 1954 Act apply?
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.
Businesses / tenancies not protected by the act..
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.
What is the statutory notice procedure necessary to disapply the act by agreement of both parties?
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.
Effect of 1954 Act..
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:
What are the 7 statutory grounds for termination / opposition to tenancy renewal under the 1954 Act?
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.
Termination by Landlord under section 25 notice
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)
Date / timing for serving S 25 notice?
Between 6 and 12 months before the termination date specified in the notice.
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?
Apply to the court before the expiry of S 25 notice. If they do not, they will lose their rights under the 1954 act.
Should the landlord pre-empt the tenant’s application to the court?
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)
What is Renewal lease by tenant S 26 request?
S 26 Request = Brings the current tenancy to an end and constitutes a request for a new tenancy.
When should a tenant file a S 26 request?
When they wish to remain in the property after the contractual expiry date.
Formalities for S 26 request =
- 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)
If L wants to oppose the grant of a new tenancy, when must it serve counter-notice on the tenant?
Within 2 moths of service of T’s S 26 request.
What should be in L’s counter-notice?
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.
What are the S 30 grounds (landlord’s opposition grounds)?
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.
Grounds a) b) c) and e) are..
- 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.
Grounds d) f) and g)
- Are mandatory where the landlord has to prove that it has offered alternative accommodation or intends to occupy itself.
Ground g) Landlord intends to occupy the holding for its own business or as a residence
– 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.
Ground F) Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession
- Landlord must show that, on the termination of the tenancy:
- 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
- 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
- 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).
The tenant is only entitled to the ‘holding’ (the property comprised in by the current tenancy, exclusing any part not occupied by the tenant.
- 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.
What will the terms of the new lease be udner S 1954 Act?
- 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:
- The fact that the tenant and their predecessors have bene in occupation;
- Any good will attached to the holding;
- Any effect on rent of any improvements voluntarily carried out by the tenant during the tenancy; and
- In the case of licensed premises, any addition in value due to the tenant’s licence.
Can T object to the new terms set by the court?
Yes, and can apply for them to be revoked.
Can L object to the new terms set by the court?
No. They can only apply for appeal.
Compensation
- 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.
How much compensation?
- 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.
