What is Security of Tenure in business leases? Part 1
Lauren Walker, an associate in the Real Estate team provides an overview of the security of tenure provisions of the Landlord and Tenant Act 1954 in two parts. This part 1 looks at what Security of Tenure is, and part 2 at how to end a lease that has security of tenure.
The Landlord and Tenant Act 1954 (the “Act”) relates to commercial tenancies only and regulates the way in which business tenancies can be terminated and gives business tenants security of tenure.
What is security of tenure?
When business property was scarce after the Second World War the Government introduced the 1954 Landlord and Tenant Act to give tenants the right to stay on in their premises when their leases ended. It confers:
- The right for a tenancy to continue automatically at the end of the contractual term, on the same terms and at the same rent, until it is terminated in accordance with the Act or a new lease is put in place between the parties.
- The right for the tenant to apply to court for a new tenancy where a landlord refuses to renew a tenancy or tries to terminate it. The landlord may only oppose renewing the tenancy or bring it to an end on certain grounds (some of which involve the payment of compensation to the tenant if they have to leave the premises).
Which tenancies are protected?
There are three requirements which must be satisfied for a tenancy to be protected:
- There must be a tenancy arrangement – this is typically a lease, but other-named agreements may be tenancies where they grant exclusive possession for a term and at a rent. Certain tenancies do not qualify – see Excluded tenancies below.
- The tenant must be in occupation.
- Occupation must be for the purposes of a business. Please note that this can include charities and clubs.
The Act does not protect certain tenancies, including:
- Tenancies which have been “contracted out” – see Contracting out below.
- Fixed term tenancies for less than 6 months, unless there are renewal or extension provisions within the tenancy agreement or the tenant (or it and its predecessor in the business) has already been in occupation for more than 12 months.
- Tenancies at will, where occupation is permitted on a daily basis only and either party can terminate at any time. They are often (but not exclusively) used where a tenant needs occupation before a lease can be formally granted.
In order to “contract out” a lease or tenancy arrangement from the security of tenure provisions, the landlord must serve a notice on the tenant in a prescribed form and the tenant must sign a declaration that he has received the notice and accepts the consequences of the agreement to contract out. If the notice is served within 14 days prior to the grant of the tenancy or any agreement to grant it, the tenant must make a statutory declaration before an independent solicitor. Where the notice is served more than 14 days before the tenancy arrangement is to be completed, a simple declaration can be made.
The lease must contain reference to the exclusion agreement, the notice and the declaration and the landlord will require that the declaration has been dealt with and a copy provided to them before completion of the tenancy arrangements.
If you require help in dealing with the renewal of a secure business tenancy or need advice relating to security of tenure, or commercial leases more generally, please contact our Real Estate team who will be more than happy to help.