Whether you are the landlord or the tenant, you need to think carefully at the time of signing a new lease about what happens when the lease comes to an end. A manufacturing company, for example, who has invested in the installation of specialist plant and machinery at a property, will want that lease to continue, to provide it with the comfort it needs to carry on operating its business without fear of having to relocate at the end of its term. Another tenant, providing business services and taking the lease of an office, for example, may not have the same concerns. They may not see the property as critical to their business in the same way as the manufacturing company does. The landlord on the other hand needs to think about its long-term plans for its property and be aware that unless it opts out of the Landlord and Tenant Act 1954 (the Act), security of tenure is automatically given to the tenants of most new commercial leases.
It can be crucial, therefore, for landlords to consider whether its tenants should have protection under the Act, especially when they might want to take possession of the property at the end of the lease. The tenancy becomes protected unless the parties contract out of the Act.
The protection given to tenants is twofold: First, the tenancy does not come to an end on the term end date of the lease and continues until it is terminated according to the procedures set out in the Act. Second, tenants are given the right to apply to court for a new lease once the fixed term of their current lease has expired. A landlord may only oppose an application on certain statutory grounds.
Security of tenure does not apply across the board to all tenancies however and there are certain tenancies that are excluded from the protection of the Act. Nevertheless, security of tenure applies to most commercial leases with a term over six months unless contracted out.
For a landlord to regain possession of the property at the end of a term, it must serve a statutory notice to terminate the tenancy. Such a notice must be served not less than six months, nor more than twelve months, before the date of termination specified in the notice itself. The date of termination cannot be before the term end date in the lease. The landlord must be able to demonstrate one or more of the following statutory grounds:
- The tenant has failed to comply with its repair and maintenance obligations
- The tenant is persistently late with rent
- The tenant is in substantial breach of their obligations
- The landlord has offered and is willing to provide or secure the provision of suitable alternative accommodation for the tenant’s requirements
- The tenant is a sub tenant of part of the landlord’s building and the landlord could get more rent by leasing the whole of the building rather than part
- The landlord intends to demolish or reconstruct the whole or any part and could not reasonably do so without obtaining possession of the property and/or
- The landlord intends to occupy the property.
If a landlord envisages that it will want possession of its property at the end of a lease term, then contracting out of the Act is crucial. In practice, the landlord will serve a warning notice before the lease or agreement for lease is completed and the tenant will reply with a statutory declaration. The warning notice must be in a prescribed form and the lease must contain reference to the exclusion agreement, the notice and the declaration.
The Act is highly technical and legal advice should always be sought in relation to any specific matter. The Sherrards property team are able to advise landlords (as well as tenants) on key considerations in relation to security of tenure.