What is a Security of Tenure?
If a tenant is a qualifying tenant (which amongst other things, includes occupying premises for the purposes of a business and where the lease has not been excluded from the security of tenure provisions) then under Part II of the Landlord and Tenant Act 1954 (the “Act”) they have a statutory right to remain in occupation of the premises on expiry of the contractual term of the lease and the right to request a renewal lease on the same terms (other than the amount of rent and modernisation).
For example, where the tenant is a qualifying tenant of a commercial lease which is granted for a term of 5 years then upon expiry of the 5 years, and provided that the tenant wishes to do so, they are able to remain and request a renewal lease from the landlord and if terms cannot be agreed to apply to Court to have them determined.
This does not prevent a tenant from simply choosing to surrender their lease and leaving at the end of the contractual term in the usual way.
Procedure for obtaining a renewal lease
Section 24 of the Act provides that a lease shall not terminate unless either the landlord has served a section 25 Notice to terminate the lease or the tenant has requested a renewal lease under section 26.
The landlord can serve a section 25 Notice, in two forms:
- “friendly” – open to the grant of a renewal lease; or
- “hostile” – opposed to the grant of a renewal lease.
If the landlord is opposed to the grant of a renewal lease, there are specific grounds for opposition set out within section 30 of the Act, a few examples are:
- the tenant has breached their obligations under the lease;
- persistent delay in paying rent; and
- the landlord intends to demolish or reconstruct the premises.
A landlord needs to serve the notice not more than 12 months and not less than 6 months before the date of termination of the lease.
If a tenant serves a section 26 request, then the landlord is still able to serve a counter notice within 2 months to oppose the request. The tenant’s request must be set to begin not more than 12 months before nor less than 6 months after making the request. In the event that terms cannot be agreed between the parties then an application can be made to Court to determine the terms of the renewal lease.
Contracting out
The right to security of tenure is automatic, however, it can be “contracted out”. This can be a significant point of negotiation when parties are entering into a lease and can have positives and negatives for either party.
To be able to contract out of sections 24 – 28 of the Act the lease must be for a fixed term of years or fixed term of years with a break clause. It is important for parties to follow the correct procedure when contracting out as this is often one of the most litigated areas when it comes to property law where it has not been done correctly.
What is the procedure for contracting out?
The procedure is set out in the Regulatory Reform (Business Tenancies)(England and Wales) Order 2003 (SI 2003/3096). These are the key elements:
- Landlord’s warning notice
- statutory declaration procedure – the landlord will serve a warning notice less than 14 days before the lease, or agreement for lease is entered into and the tenant will reply with a statutory declaration; (most common in practice)
- advance notice procedure – the landlord will serve a warning notice 14 days or more before the lease or agreement for lease is entered into and the tenant will reply with a simple declaration
- Tenant’s declaration – this will be a signed declaration by the tenant that they understand the rights they are waiving by contracting out and take the form of:
- statutory declaration; or
- simple declaration
- Endorsement
- the lease or instrument creating the lease will be endorsed accordingly and there will be a specific clause covering the notice and declaration.
If the tenant has a guarantor they must also be served and provide a declaration. If there is ever any variation to the lease parties must also be careful to ensure that there is no deemed surrender and re-grant of the lease as this would invalidate the contracting out of the Act as the correct procedure will not have been followed.
What is the effect of contracting out?
By following the correct procedure and effectively contracting out of the security of tenure provisions it will have the following effect:
- tenant has no automatic right to remain in the premises at the end of the lease;
- tenant must leave the premises on expiry of the lease, unless the landlord wishes to enter into a renewal lease;
- tenant has no right to compensation on leaving; and
- tenant does not have the right to apply to Court to determine the terms of a renewal lease.
If you have any questions regarding Security of Tenure or require advice on any commercial property issues, please contact our Commercial Property department at Rothera Bray on 03456 465 465 or by email to enquiries@rotherabray.co.uk
Disclaimer: This blog is for information only and does not constitute legal advice. If you need legal advice please contact us on 03456 465 465 or email enquiries@rotherabray.co.uk to get tailored advice specific to your circumstances from our qualified lawyers.
