Business leases enjoy the statutory right to a lease renewal at the end of their contractual term if it satisfies various criteria set out in the Landlord and Tenant Act 1954 (‘LTA 1954’). This right is also known as the right to ‘security of tenure’. Security of tenure means that a tenant will be entitled to a new lease at the end of the contractual term, the terms of which are to be agreed between the landlord and the tenant. If the terms of a renewal lease cannot be agreed, it will be for the court to determine the matter.
Section 23 of the LTA 1954 sets out the criteria for a qualifying tenancy as follows:
- There must be a tenancy: This can include underleases, agreements for lease or underlease and periodic tenancies. Licences and tenancies at will do not qualify.
- The tenancy must relate to the premises: ‘premises’ can include both land and buildings but to qualify, the premises must be capable of occupation.
- The tenant must carry out a business at the premises: a business includes a trade, profession or employment and does not necessarily have to be for profit.
- The tenant must occupy the premises for the purpose of a business: there are several aspects to this requirement:
- the tenant must have a physical presence and control of the premises, although an intention to occupy may satisfy this criterion;
- if the property is being used for mixed purposes then that will be sufficient to satisfy this criterion, provided that one of those uses is for business purposes;
- an underletting of the whole of the premises will mean that the head tenant loses the protection of the LTA 1954 as it will no longer be in occupation. If the tenant underlets part the same principle applies and it will no longer be in occupation of the whole;
- if the tenant vacates for the purpose of carrying out fit out works it is unlikely that it will be deemed to have given up occupation as it will have an intention to occupy.
If the above criteria apply then, on the face of it, the tenancy should qualify to benefit from the provisions of the LTA 1954. Some tenancies however are specifically excluded and will not be able to benefit from security of tenure even if they meet the qualification criteria. These tenancies include mining leases, agricultural holdings, service tenancies (i.e. granted as part of a tenant’s employment) and tenancies for a term of 6 months or less.
Procedures for renewal
There are separate, prescribed procedures for service of notice where the landlord initiates renewal and where the tenant initiates renewal. These can be very broadly summarised as follows:
- Landlord’s notice
Where the landlord is not opposed to a renewal, it may serve a ‘section 25’ notice on the tenant, setting out its proposed terms for the renewal lease. The section 25 notice must be served not more than 12 months and not less than 6 months before the termination date specified in the notice. It is not necessary for the landlord to serve a draft renewal lease at that stage and the landlord’s proposals may be renegotiated after serving the notice.
There is no need for the tenant to serve a notice in response to the section 25 notice, but either party may subsequently apply to the court for the renewal of the tenancy. If the landlord applies to the court but the tenant informs the court that it does not wish to take a renewal lease then the application will be dismissed.
- Tenant’s notice
Where the tenant requires a renewal lease, it may serve a ‘section 26’ notice on the landlord, to be served not less than six months and not more than 12 months before the proposed commencement date for the new lease. The renewal lease cannot commence before the contractual term of the current lease expires.
If the landlord opposes a renewal lease on receipt of the tenant’s section 26 notice it must serve counter-notice within 2 months of the date of the request. Again, either party can apply to the court to request or oppose a renewal.
The courts have the power to order the grant of a new lease for a term of up to 15 years.
Contracting out of the provisions of the Landlord and Tenant Act 1954
Landlords and tenants are entitled to agree to exclude the statutory right to a lease renewal, so long as the landlord serves a notice on the tenant before entering into the lease that the tenancy is to be ‘contracted out’ of those provisions of the LTA 1954 conferring security of tenure and the tenant has signed a declaration confirming its agreement to this. If the notice is served less than 14 days before completion of the lease, the tenant must serve a ‘statutory declaration’ i.e. sworn in front of a solicitor or commissioner for oaths.
If your tenancy benefits from security of tenure and you require advice or assistance as to the process of renewal we can help. Please contact Debbie Turner on +44 (0)1372 461411 for more information.