Primarily, most business tenants are afforded the protection of the Landlord and Tenant Act 1954. This means that a business tenant cannot simply be thrown out on the street, and also has rights to renew a lease at its end in certain circumstances. We have included a free guide below on how these protections work in favour of a tenant, what landlords have to be aware of, and a tenant’s rights on lease renewal.
The Act has undergone many changes, but still provides a regime which gives security to many business tenants. However, since the standard lease term has shortened, many landlords wish to exclude the provisions of the act and the procedure for exclusion (which used to need a court order) has been simplified, to require only that some basic forms are filled out. Therefore, many prospective tenants are faced with a proposed new lease which is to be ‘contracted out’. This means that they will not have the protection of the 1954 Act. Nevertheless, there are still many business leases in the country that have the protection of the Act, and many prospective tenants should seek, if they consider taking the grant of a new lease, to ensure that it is not contracted out. Even if a lease is protected by the 1954 Act, circumstances can occur where the business tenant can lose the protections or security provided by the Act, particularly if they no longer use and occupy the premises for the purposes of their business, for example if it is left empty for a period of time. The purpose of the Act is to provide tenants who are actually in a premises with reasonable security.
Any business lease that has the protection of the 1954 Act will not automatically determine on its expiry date. If, therefore, a lease was for example granted to a business tenant for a 5 year term in 2005, it does not necessarily mean that the lease term will end in 2010. It may carry on indefinitely until one of the three procedures afforded by the 1954 Act triggers its end.
Therefore, rent will still be payable at the same rate during the lease term unless one or other of the legal procedures below.
The first procedure is a landlord’s notice. However, the notice must indicate whether or not the landlord will oppose renewal, and if the landlord does object to renewal, the notice must provide one of the reasons laid down by the Act. Therefore simply because the landlord may not like the tenant is not a ground for opposing renewal. There are a limited number of statutory grounds, but the two most common grounds are a) redevelopment of the premises, and b) the landlord requiring the premises for the purposes of its own business. There are other grounds, e.g. non-payment of rent during the term, breach of covenant (to repair) etc., but these are rarer than the two grounds first mentioned, which are by far the two most considered by landlords, tenants, and commercial property lawyers. Of those grounds, it is the redevelopment ground that is the more common. There are regulations laid down by the act to show that the redevelopment ground is genuine, and even that may not necessarily prevent the business tenant having a new lease in the redevelopment property, although there are strict rules which have to be observed. For example, where a refurbishment of a restaurant or bar unit in a development may be required by a landlord, a court may order that that business is offered a lease in the new premises on terms that the court dictates. However, where a site has been demolished or completely redeveloped, that will be less likely to apply.
The other ways for determining a business lease at the end of its contractual term are either a simple notice to quit from the tenant, or a notice from the tenant that it requires a new lease putting the landlord on notice as to whether or not it will oppose. If the landlord wishes to oppose, it can only resort to the statutory grounds listed in the paragraph above. The three ways listed above of terminating a lease are, strictly speaking, the only ways in which this can be done. However, courts have ruled that if a tenant leaves a premises, hands back the keys to the landlord and stops paying further rent, then this will be generally viewed as an acceptable termination of the lease.
By far, lease renewal boils down to trying to agree the new terms, and that is often negotiated by surveyors and valuers for the landlord and the tenant. It is no longer common practice for the renewal terms to proceed to the court and be determined by the court. The 1954 Act does provide a structure for lease renewal terms to be determined by the court, and valuers will adhere to it when negotiating with the other party. A commercial property lawyer may be necessary if a referral to the court for a decision is necessary. But the general principle is that the valuer or court will look at the last lease as a basis for consideration of what terms the new lease will contain. Most valuers will advise the client from the outset to show a flexible attitude in negotiation. In respect of issues such as rent, valuers will look at comparables – i.e. other rents in similar locations. This is particularly relevant in developments with multiple tenants such as shopping centres.
Final Note: Where an end or continuation of a commercial lease is being sought by one party, it is advisable to speak to an experienced commercial property lawyer.
For our services relating to renewing commercial leases please select one of the following:
If you would like us to act for you in one of these matters, please call us on 0207 936 1967 (London Fleet Street Office) , 0121 5350012 (Birmingham Office), 0808 155 4870 (Salford Office) or 0161 615 5562 (Manchester Office) and ask to speak with one of our Commercial Property solicitors.