Workshop 9

Question 1

Fixed term tenancy

Answer 1

· A fixed term tenancy creates exclusive possession and a proprietary interest.
· It binds successors in title to the landlord.
· The tenant can use the property as if they were the owner.
· It can benefit from security of tenure.

Question 2

Periodic tenancy

Answer 2

· A periodic tenancy creates exclusive possession and a proprietary interest.
· It binds successors in title to the landlord. However, it can be brought to an end by notice.
· It can benefit from security of tenure.

Question 3

Licence

Answer 3

· A licence is a personal permission to be on the land and is not a proprietary interest.
· It does not bind successors in title to the owner granting the licence.
· It cannot benefit from security of tenure.

Question 4

Tenancy at will

Answer 4

· A tenancy at will is similar to a licence as it is a personal permission but unlike a licence, the tenant can have exclusive possession.
· However, the important feature is that either landlord or tenant can end the tenancy at any time.
· It cannot benefit from security of tenure.

Question 5

when does security of tenure apply?

Answer 5

…any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes…

it can only apply to tenancy

Question 6

“OCCUPIED BY THE TENANT”

Answer 6

This requirement is reasonably straightforward. If the tenant leaves the premises vacant, then it is not entitled to claim security of tenure.
However note also that if the tenant underlets the whole or the part of the premises, then it follows that it cannot be in occupation and will lose security of tenure over the whole or part of the premises accordingly.
Example: a tenant has an office lease of floors 2 and 3 of a building. It underlets floor 3 for a term ending one day before its own. At the end of the contractual term, the tenant has security of tenure for floor 2 but not 3.

Question 7

“FOR THE PURPOSES OF A BUSINESS”

Answer 7

This requirement is widely defined by the Landlord and Tenant Act 1954 as including any “trade, profession or employment”.
Case law has refined this definition further.

These have been held to be business purposes:
· a charity shop
· a tennis club for members only
· residential use that furthers the tenant’s business (eg, accommodation for medical school students or a lease of a shop, part of which could be used for residential purposes)

These have been held not to be business purposes:
· Sunday school sessions provided free of charge by an individual
· A tenant of a house taking a small number of lodgers without profit

Question 8

Excluded tenancies

Answer 8

Section 43 of the Landlord and Tenant Act 1954 specifically excludes some types of tenancies from security of tenure:
* Agricultural tenancies (as they have their own statutory regime)
* Mining leases
* Service tenancies (a lease granted as part of a tenant’s employment, eg, a security guard’s flat)
* Fixed term tenancies of six months or less (but can become protected if the tenant has been in occupation for twelve months or more, whether through successive tenancies or if the tenancy is renewable beyond six months)

Question 9

Contracted out tenancies

Answer 9

S38A of the Landlord and Tenant Act 1954 allows the parties to agree to exclude a fixed term lease from the security of tenure provisions.
This is known as contracting out.
Assessment tip: Note that only fixed term leases can be contracted out. A periodic tenancy that qualifies for security of tenure cannot be contracted out

Question 10

Why/why not contract out?

Answer 10

It might be thought that if a landlord can contract out every tenancy, they would want to.
In practice, offering protected tenancies may encourage long term tenants, and not doing so may limit the premises’ appeal.
The following tenancies are commonly contracted out:
* short term leases (5 years or less)
* underleases (usually required by the tenant’s lease)

Question 11

Procedure for contracting out

Answer 11

The Landlord and Tenant Act 1954 used to require a court order be obtained to any contracted out tenancy.
From June 2004, a much simpler two-stage procedure has been in place, not requiring a court order. However, it must be strictly observed.
The landlord must serve a warning notice on the tenant in a prescribed form. This details the consequences of contracting out the security of tenure provisions.
It must be served before the parties complete the lease.
The tenant must provide a declaration in prescribed form to the landlord before completing the lease.
If lease completion is at least 14 days from the date of the warning notice then this can be a simple signed declaration.
If lease completion is less than 14 days away, then the tenant must provide a statutory declaration (declared before an independent solicitor).
The lease must contain reference to both the notice and declaration (or statutory declaration) of contracting out.
If the procedure is not correctly carried out, or not correctly referred to in the lease, the likelihood is that the lease will enjoy security of tenure

Question 12

What happens at the end of the contractual term?

Answer 12

For a non-protected tenancy, the tenant has no right to occupy beyond the contractual term. If the landlord has notified the tenant that it requires possession at the end of the contractual term, then if the tenant continues to occupy, the landlord may treat them as a trespasser and recover possession.
By contrast, for a protected tenancy, the tenant has the right to stay in occupation. This is known as holding over. The landlord cannot evict the tenant, and the tenant’s occupation can only be brought to an end by certain methods allowed by the Landlord and Tenant Act 1954.

Question 13

Ending a protected tenancy - landlord

Answer 13

The landlord has limited options to bring the tenancy to an end.
The landlord’s options are to:
* forfeit the lease if there has been a breach of the tenant’s covenants and the lease allows this
* serve a section 25 notice, which may indicate an intention to recover the premises or offer a renewal lease
Note that the security of tenure provisions do not prevent the landlord from forfeiting the lease if, for example, the tenant is in arrears with rent, and the lease allows for it. This is covered in the elements on termination of leases.
Section 25 notices are covered in the element on landlord’s notices.

Question 14

Ending a protected tenancy - tenant

Answer 14

As the security of tenure provisions are for the protection of the tenant, the tenant has more options for bringing the lease to an end.
The tenant’s options are:
* simply to vacate the premises at the end of the contractual term
* to surrender the lease with the landlord’s agreement
* for a periodic tenancy, serve notice to quit to bring the tenancy to an end
* serve a section 26 notice to request a new tenancy
* serve a section 27 notice to leave the premises
As surrender and notice to quit also apply to non-protected tenancies, they are covered in the elements on termination of leases.
Section 26 and section 27 notices will be examined in the element on tenant’s notices.

Question 15

Section 25 notice

Answer 15

The landlord’s section 25 notice states when the current tenancy will end (the date of termination). The date of termination must be on or after the date on which the contractual term ends.
A section 25 notice must be served no less than 6 months and no more than 12 months before the date of termination.
The section 25 notice must be in the form prescribed by statute.
A ‘friendly’ section 25 notice indicates that the landlord is willing to renew the lease to start the day after the date of termination. It will propose the rent to be paid and principal terms of the new tenancy.
A ‘hostile’ section 25 notice indicates that the landlord intends to oppose renewal of the lease. The landlord can only do this on certain statutory grounds, and must specify on which ground or grounds the landlord intends to rely.

Question 16

The friendly section 25 notice

Answer 16

Why would a landlord want to serve a friendly section 25 notice?
- Peace of mind – the landlord wants the tenant to be tied to a further term and therefore the landlord’s rental income will be guaranteed.
- In a rising market, to enable a market rent to be fixed for the renewal tenancy.
A lease may contain a rent review on the last day before the end of the contractual term. This is designed to ensure that the tenant pays a market rent during the period of holding over. Even if this is done, the rent will stay the same during the period of holding over, so this is only a limited solution.

Question 17

The hostile section 25 notice

Answer 17

There are seven grounds on which the landlord can oppose renewal of the tenant’s lease, of which the most important are:
- persistent and serious breach by the tenant of a repairing obligation
- persistent delay by the tenant in paying rent
- serious and persistent other breaches of covenants by the tenant
- the landlord offers suitable alternative accommodation
- the landlord intends to demolish or reconstruct the premises or carry out substantial construction work which require possession
- the landlord intends to occupy the premises for itself
There is another ground, but it is rarely used in practice and is unlikely to come up in an assessment.
The landlord must be able to substantiate the ground on which it is relying. For example, if the landlord intends to redevelop the premises, it may show that it has obtained planning permission or entered into a construction contract.
The grounds can be categorised into mandatory or discretionary.
A mandatory ground means that if the landlord establishes the ground, the court must grant possession to the landlord.
A discretionary ground means that even if the landlord shows the ground, it is down to the court’s discretion.
Example: a landlord shows that the tenant has been in persistent and serious breach of the repairing obligation. However, the court decides that the landlord’s behaviour has contributed to the breach, and decides not to grant possession.
The grounds can also be categorised into compensatory and non-compensatory, which unfortunately follows a different pattern.
If the ground relies on no fault of the tenant (e.g., the landlord needs to carry out work), then the tenant may be entitled to compensation. This is a compensatory ground.
Conversely, if the ground relies on the tenant’s fault (breach of covenant), then the tenant is not entitled to compensation. This is a non-compensatory ground.

Question 18

how is compensation calculated

Answer 18

• at 1x the rateable value if the business has occupied the premises for less than 14 years
• at 2x the rateable value if the business has occupied the premises for 14 years or more
  For calculating the qualifying time period, the current tenant can include time that the business was carried on by a previous tenant provided that the current tenant has taken over the same business. This will likely require a transfer of goodwill, and it is not enough that the current tenant simply carries on the same kind of business as the previous tenant.
  It is only possible for a protected lease to contract out of paying compensation if the tenant has been in occupation less than five years.
  Key word or definition: rateable value is based on estimated annual rental value of premises and is fixed by the local authority for the purpose of the calculating business rates due for the premises. It is not necessarily the same as the market rent.

Question 19

list of the grounds, together with the evidence they require, whether they are mandatory or discretionary, and whether they are compensatory:

Answer 19

Ground (a) – breach of tenant repairing obligation
Evidence will be required of a serious breach. Discretionary, not compensatory
Ground (b) – persistent delay in paying rent
Evidence of length of delay and number of failures to pay rent on time. Discretionary, not compensatory
Ground (c) – other substantial breaches of tenant obligations
Evidence of serious and persistent breaches. Discretionary, not compensatory
Ground (d) – availability of suitable alternative accommodation
Landlord must have made an offer of alternative accommodation suitable to the tenant (with regard to the tenant’s business and goodwill). Mandatory, not compensatory
Ground (e)
Not covered for our purposes
Ground (f) – intention to demolish or reconstruct premises or carry out substantial construction
Firm and settled intention to redevelop, possibly planning permission or construction contract. Mandatory, is compensatory
Ground (g) – landlord intends to occupy premises
Firm and settled intention by landlord who must have owned the reversion for at least 5 years before the date of termination. Mandatory, compensatory

Question 20

surrender definition

Answer 20

A surrender is when the tenant gives up its leasehold interest to the landlord, bringing it to an end.

Question 21

can u serve multiple notices (s 25 s 26 etc) at the same time

Answer 21

NO - they are mutually exclusive

Question 22

The section 26 notice

Answer 22

As the tenant is entitled to hold over, why would a tenant want to serve a section 26 notice to renew the lease?
* The tenant may want the certainty of a fixed term, particularly if it is planning to carry out improvements to the premises, or to assign the lease as part of a business sale.
* In a falling market, the tenant may be stuck on a higher than market rent while holding over (particularly if there was a penultimate day rent review) and will want a renewal lease at a market rent
Either the landlord or tenant therefore has the option to request that renewal takes place.

Question 23

Requirements of section 26 notice

Answer 23

Aside from having a protected tenancy, the tenant must have a lease that originally granted a contractual term of more than one year. For a tenancy of a year or less, the tenant cannot start the renewal process, although the landlord can with a friendly section 25 notice.
As with the section 25 notice, there is a minimum notice period of six months, and a maximum notice period of twelve months. However, unlike the section 25 notice, the notice is not to expire on the date of termination, but the proposed commencement date of the renewal lease.
A landlord has two months from the section 26 notice to serve a counter-notice (ie opposing the grant of a renewal lease). As with a hostile section 25 notice, the landlord can only do so on one or more of the statutory grounds.

Question 24

Use of a section 27 notice

Answer 24

A section 27 notice must give three months of the intended termination date, which must be no earlier than the date on which the contractual term ends.
Example: A tenant knows that it will want to remain in the premises two months after the end of the contractual term. The tenant will serve a section 27 notice one month before the end of the lease.
A tenant who intends to leave the premises at the end of the contractual term need not serve any notice. However, to avoid any doubt, it would be good practice to notify the landlord.
The tenant may want to use a formal section 27 notice, in which case the tenant would need to serve it no less than three months before the end of the contractual term.
Once a section 27 notice has been served, the tenant cannot serve a section 26 notice, nor can the landlord serve a section 25 notice.

Question 25

Procedure following a section 25 or section 26 notice - application to court

Answer 25

The lease renewal process is underpinned by the possibility of either or both parties applying to the court to renew the lease (and fix the terms of the new lease) or, in the case of the landlord, to recover possession.
Either party may apply to the court at any time after service of a section 25 notice, the deadline for applying being the date of termination specified in the notice.
With a section 26 notice, as the parties may only apply after either the landlord has served a counter-notice, or if not, two months have elapsed from the section 26 notice. The deadline for applying to the court is the day before the proposed commencement date of the new lease. The deadline may be extended by the parties agreeing in writing.

Question 26

Procedure following a section 25 or section 26 notice - Negotiation of terms of new lease

Answer 26

Both a friendly section 25 notice and a section 26 notice will propose the principal terms of the renewal lease.
The landlord and tenant will usually try to agree the terms of the lease between themselves, and only if they are unable to reach agreement will they ask the court to decide.
The court can grant a term up to 15 years, the rent will be open market rent, and other terms are determined by the court having regard to the terms of the current tenancy and relevant circumstances.

Question 27

Procedure following a section 25 or section 26 notice - Interim rent

Answer 27

During the period of holding over and negotiation, the tenant will continue to pay rent as it was last reviewed by the lease.
Either party may apply during this period to the court to fix an interim rent which is based on the open market rent. Unlike a rent review, this is not upwards only, and it may be lower than the last reviewed rent in a falling market.
The interim rent is payable from the earliest date of termination that could have been specified in the landlord’s section 25 notice, or the earliest date that could have been specified as the proposed commencement date in the tenant’s section 26 notice.

Question 28

Procedure following a section 25 or section 26 notice - Court orders

Answer 28

Either tenant or landlord may apply to the court for an order to grant a new lease, even if the landlord opposed the renewal.
If the tenant is not happy with the terms determined by the court, or has simply changed its mind, it has 14 days to ask the court to revoke the court order. If asked, the court must agree, and the tenant will then have no right to renew.
A landlord who is opposing renewal on the statutory grounds, whether by hostile section 25 notice, or following a counter-notice to a section 26 notice, may apply to the court for an order for termination of the existing lease.
This order will bring the existing lease to an end, following which the tenant has no right to remain in occupation.
Both types of order bring the existing tenancy to an end three months and 21 days after the date of the order. (21 days from the date of the order is the time allowed for appeal.)
If the court order is for the grant of a new lease, the new lease will start the day after the termination of the existing lease.

Question 29

notices and other notice requirements - date rules

Answer 29

A notice expires on the same date as the date on which it was served. For example, a 6 month notice served on 1 January expires on 1 July.
A notice served on the last day of the month will end on the last day of the appropriate month if it is shorter.
For example, a 6 month notice served on 31 August will end on 28 February (or 29 February in a leap year) the next year. (This is called the corresponding date rule.)
Example - calculating dates for section 26 notices
Assume today’s date is 1 January. A tenant’s protected lease was “from and including 15 July” and expires this year. What date can the tenant specify as the proposed commencement date (“PCD”) for the renewal lease?
The contractual expiry date of the existing lease is 14 July this year (see element on term of a lease) so the PCD can be no earlier than 14 July.
The period from the notice is no less than six months for the PCD and no more than 12 months for the PCD. As it is 1 January, the earliest date for the PCD is 1 July, and the latest is 1 January next year.
As the tenant must comply with both rules, the PCD must fall between 14 July and 1 January next year inclusive of both dates.

Question 30

notices and other notice requirements - competent landlord

Answer 30

Both the section 25 and section 26 notice procedures must be conducted between the tenant and the competent landlord. The competent landlord may not be the same person as the immediate landlord to the tenant.
The competent landlord is the first in the chain of landlords, starting with the immediate landlord to own a reversionary interest which is either freehold or a leasehold that will not come to an end in 14 months’ time.