History

Following World War II, and the subsequent insecurity and instability of the commercial property market, the Landlord and Tenant Act 1954 (the “Act”) was implemented to prevent landlords from obtaining a rent premium from tenants wanting to remain in the premises. This principle became known as ‘security of tenure’, and its aim was to re-invigorate the commercial property market by providing flexibility to tenants.

The Act, and therefore security of tenure, is now automatically implied in leases granted to tenants over business premises. In order to benefit from the Act, the tenant must be in occupation of the premises for business purposes.

Some landlords will actively opt their leases out of the Act, particularly where the lease is for a short time, or where, before the grant of the lease, they actively anticipate that they will be redeveloping the property.

Other examples of occupiers that are not protected by the Act are –

• occupiers under a licence or a tenancy at will
• a fixed term tenancy of less than 6 months.

End of the Contractual Term

The Tenant

Before the end of the term, the tenant must decide whether they wish to remain in the property. Their options are:

1. To serve a section 26 notice on the landlord not more than 12 and not less than 6 months before the expiry of the lease, requesting a new lease (within the above timeframe);
2. To do nothing and remain in the property. The terms of the existing lease continue, and the tenant continues to pay the same rent. This is known as ‘holding over’; or
3. To vacate the property and return the keys to the landlord.

Practically speaking, the tenant should ask the landlord to extend the statutory time limit in good time before the end of the tenancy. This must be agreed in writing. Normally these extensions are agreed as the ongoing tenancy is not disputed, but if no extension is agreed by the statutory deadline, then the tenant must apply to Court to protect their position. If the tenant fails to apply to the Court or to agree an extension of time by the deadline date, the tenancy will become a tenancy at will and the tenant will lose the protection of the Act. It is therefore critical for the tenant to diarise key dates and be proactive in negotiating extensions.

In response, the landlord can accept the section 26 notice and negotiate a new lease.

If the tenant wants to leave, then they will give notice to the landlord of their intention to leave as per the terms in their lease.

The Landlord

Alternatively, if the landlord is keen to keep the tenant on, it can initiate a lease renewal by serving a ‘friendly’ section 25 notice before a section 26 notice is served. The time limit must be observed in the same way: any notice pursuant to either s.25 or s.26 notice must be served not more than 12 and not less than 6 months before the expiry of the lease.

Once the parties have agreed that the lease renewal is unopposed, they will then proceed to negotiate the terms of the new lease, which will usually not differ too much from the original lease, but items such as rent, for example, will have changed with the market rates. Again, this will have to be agreed before the expiry of the term to protect the tenant’s position.

If the parties cannot agree new terms, they may apply to the court, or to PACT, an arbitrator, to determine the terms of the new lease.

Ending the Tenancy

If the Landlord does not want to keep the tenant on, it can serve a ‘hostile’ section 25 notice on the tenant, asserting its position that it intends to terminate the tenancy upon its expiry. It can either do so independently, or in response to a s.26 notice from a tenant. The counter-notice must be within 2 months of the s.26 notice.

The landlord can only seek to remove the tenant at the lease end date by serving a notice to terminate, and then only if they can demonstrate that any of the following apply:

a)    the tenant has failed to repair

b)    persistent delay in paying rent

c)    other substantial breaches by the tenant

d)    suitable alternative accommodation is offered

e)    subletting of part

f)     landlord intends to redevelop/demolish

g)    landlord intends to occupy

Proving grounds under s.30 LTA 1954

Ground (f) is the most commonly used ground and has two elements: the first is a subjective intention to redevelop. This is usually proven by the landlord producing evidence such as board minutes, a signed building contract, indicative plans, consents/approvals, expert evidence or funding. The second limb is an objective ability to carry out the work i.e. the landlord has to show there are no significant obstacles to the redevelopment.

The two limbs must be satisfied independently: even though the landlord may have a firm and settled intention, are there too many hurdles to overcome? It is therefore important for landlords to be well organised from the outset of an opposed lease renewal.

Landlords will often try to get around the requirements by arranging for ‘top-up’ works to the premises. Therefore, the question that a Court will often ask is: would the landlord do the same works if the tenant left voluntarily?

The same goes for ground (g): the question is, would the landlord go into occupation of the property if the tenant left voluntarily? A court will take a granular approach to whether the landlord’s intention satisfies this. A court will look at each element (the subjective intention and the objective ability) to establish that the landlord is not doing ‘top-up’ work to get around the requirements. Therefore, if the landlord only wants to occupy the premises in order to remove tenant, this will fail the test.