What is Security of Tenure in business leases? Part 2
Part 1 of this two-part article series looked at what security of tenure is. This part looks at how a lease with security of tenure comes to an end
Terminating a secure tenancy
A secure tenancy can only be terminated in one of the specific ways set out in The Landlord and Tenant Act 1954 (the “Act”). The most commonly ways exercised are:
By the tenant
If the tenant contractually breaks its lease before the end of the contractual term, exercising a break option it has under the lease, then it has foregone any security of tenure. It does not need security of tenure because it has chosen to leave.
If the tenant has vacated as at the end of the term, then the lease just expires and there is no tenancy to be continued under the Act and no notice is needed to be given by either party. Protection is conferred on tenants “in occupation”, “for the purpose of their business” and so if they are no longer in occupation, these rights have been given up.
By the landlord
The landlord can serve a statutory “Section 25” notice to terminate the tenancy. The notice must be served not less than six months, nor more than twelve months, before the date of termination specified in it and such date cannot fall before the contractual term end date.
The landlord’s notice must state whether the landlord will oppose an application by the tenant for a new tenancy, and if so, on which ground(s) of opposition.
Requesting a new tenancy
Rather than wait for the landlord to serve a notice, the tenant can request a new tenancy, which may have tactical advantages for him. Where a tenant serves such a notice (a “Section 26 request”) , it must set out the proposed terms of the new lease and it must comply with statutory requirements. Not all tenants can request a new tenancy.
If the landlord wishes to oppose the application for a new tenancy, the landlord must serve a counter-notice within two months of the notice given by the tenant. The counter-notice must state the ground(s) of opposition.
If the landlord wishes to enter into a new tenancy with the tenant but on slightly different terms, they can serve a counter-notice setting out their proposed terms. The landlord and the tenant can then negotiate the new terms before the new tenancy documentation is prepared.
The Landlord and Tenancy Act 1954 generally requires that, where terms cannot be agreed between the parties, that the new tenancy must be on similar terms to that of the existing tenancy.
Grounds of opposition
The most frequently used grounds are:
- That the landlord has a settled and firm intention to demolish or reconstruct the premises at the end of the tenancy and cannot do so without obtaining possession from the tenant.
- That on termination of the current tenancy the landlord intends to occupy the premises for his own business purposes.
If either of these grounds are successfully used by the landlord, compensation may be available for the tenant.
Other grounds of opposition include the tenant’s failure to repair the premises, the tenant’s persistent delay in paying rent, the tenant being in substantial breach of other obligations or that the landlord has offered alternative accommodation.
The burden of proof is on landlord to demonstrate that one or more of the grounds is satisfied and the tenancy should not be renewed. This can be a tall order depending on what ground(s) the landlord intends to rely on.
Either party can apply to the court within prescribed time limits to have the matter determined, either to terminate the tenancy or to apply for a new tenancy.
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 Property Litigation team who will be more than happy to help.