The renewal of a business tenancy is governed by Part 11 of the Landlord and Tenant Act 1954 (“the 1954 Act”)(as amended).
A tenant of a business lease has a legal right to a lease renewal at the end of the contractual term of their lease if the lease satisfies the criteria set out in the Landlord and Tenant Act 1954 (LTA 1954).
The steps to take at the end of a commercial lease, largely depend on whether a lease is inside or outside the 1954 Act
Where a lease is to be renewed, the standard procedure is for the terms of the new lease to be agreed between the landlord and tenant. If they cannot reach agreement, either party can apply to the court and the court will determine the terms of the new lease. In principle, many lease renewals are unopposed, and the landlord and tenant renew the lease on agreed terms.
What does 'business' in Part 2 of the 1954 Act include?
Under Part 2 of the 1954 Act a business includes any trade, profession or employment. It also includes any activity carried on by a body.
The Act therefore covers:
shops, factories and warehouses.
doctors’ surgeries, estate agencies offices, dentists’ surgeries.
premises occupied by trade unions, institutions, clubs and other organizations.
offices occupied by businesses, professionals, charities and other voluntary bodies.
It would also cover live/work premises (i.e. premises occupied by the tenant for work and residential use).
Types of Business tenancies : Secure and unsecure Business tenancies
Save for some exceptions, business leases in England and Wales are of two types:
Secure business tenancies (i.e. those that benefit from the security of tenure provisions in the Landlord and Tenant Act 1954 (“the 1954 Act”) and are therefore inside the Act; and
“unsecure” business tenancies (i.e. those that have been expressly excluded from the Act and are therefore outside the Act.
Business tenancies that cannot be secure
The following business tenants are expressly excluded from the 1954 Act and therefore do not have the right to renew their business tenancies.
Service tenants' employed by the landlord ie tenancies connected with employment.
Farm tenants (ie agricultural tenants).
Tenants who agree to 'contract out' (ie a tenancy approved by the court in advance on the understanding that the tenancy is not protected as a secure business tenancy. This is known as “contracting out of the Act”)
Tenants occupying under a license rather than a lease.
Tenants with long leases which have been extended under the Leasehold Reform Act 1967 and, in some instances, their sub-tenants.
Tenants of premises who have sub-let and are not personally occupying the premises. However please note that occupation by the tenant’s manager or agent can give the tenant renewal rights.
Tenants with fixed-term tenancies of six months or less with no right to renew or extend. However, these tenants will have security of tenure once they have occupied the premises for more than 12 months, either on their own or with their predecessor. Please do note that a 'periodic' tenant (is a tenant with a monthly or weekly tenancy but without a fixed term) does enjoy security of tenure.
tenants using the premises for business without the landlord's consent.
Mining tenants.
Exclusion of the right to renew the lease : “Contracting out” provisions
If the landlord does not want the tenant to have a secure business tenancy the landlord can exclude the provisions of the 1954 Act by following a statutory procedure called “contracting out” before the tenant signs the lease. Before accepting this kind of lease, it is important for a tenant to properly understand the implications of 'contracting out'.
The law requires the landlord to give the future tenant a warning about the dangers of agreeing to 'contract out' by:
sending the tenant, a warning notice at least 14 days before the tenant takes on the lease.
The notice period will be at least 14 days before the tenancy begins and the tenant must sign a simple declaration that he or she has read the notice and accepted its consequences.
The warning notice will tell the tenant that:
You will have no right to stay in the premises when the lease ends.
Unless the landlord chooses to offer you another lease, you will need to leave the premises.
You will be unable to claim compensation for the loss of your business premises, unless the lease specifically gives you this right.
If the landlord offers you another lease, you will have no right to ask the court to fix the rent.
OR
If the tenant and landlord for various reasons cannot wait for 14 days the tenant must make a 'statutory declaration' before an independent solicitor (i.e. a solicitor who is not the solicitor of either party) confirming that the tenant has read the notice and as been advised of the exclusion of their security of tenure and is happy to proceed with the grant of the lease on that basis.
The lease must say that the parties have taken one of the two steps above. If the parties do not follow them correctly, the tenant will automatically keep the right to renew the lease.
Provided the tenant can meet all the criteria set by the LTA 1954, a landlord cannot oppose a lease renewal if he has not specified a ground of opposition.
Applications for a new tenancy - FAQs
Question: Who can apply to court for a new tenancy?
Answer: The Landlord or the tenant can apply to the court for a new tenancy. The applications are generally made to the county court. However, where the lease renewal is complex the application can be made to the High Court.
The Landlord
Prior to applying to the court for a new tenancy the landlord must serve a 'section 25' form on the tenant. The section 25 notice ends the current tenancy. If the landlord is willing to renew the tenancy, the landlord will set out his proposed terms for the new tenancy in the section 25 notice. The tenant is not obliged to accept these terms.
The Tenant
Prior to applying to the court for a new tenancy the tenant must serve a 'section 26' form on the tenant. This notice will set out the tenant's proposals for the new tenancy.
Where the tenant has already sent a 'section 26' request, the landlord cannot send a 'section 25' form. Further, where the landlord has already served a 'section 25' notice the tenant cannot serve a 'section 26' request.
Question: I am a landlord. I have a commercial tenant occupying one of my warehouses. I wish to redevelop the premises. When can I serve the s25 notice?
Answer: You must serve the section 25 notice at least six but not more than 12 months before the date you want the tenancy to end but you cannot ask for the tenancy to end before the lease expiry date.
Question: I am a business tenant with a 5year lease. My tenancy is expiring in 12 months’ time. I would like to renew my tenancy. When can I serve the s26 notice?
Answer: You must serve the section 26 notice on your landlord at least six but not more than 12 months before the date you want your new tenancy to start. But please note that you cannot ask for the new tenancy to start until after your lease expiry date.
Question: Does the landlord have to respond to a tenant’s s26 request?
Answer: Landlord - Yes, the landlord must respond to a tenant’s s26 request within two months of being served with the notice if he wants to oppose the grant of a new lease to the tenant.
Question: Must the tenant respond to the landlord’s s25 notice?
Answer: Tenant - However, the tenant does not need to respond to the s25 notice. We would however advise that the parties seek professional advice and consider negotiating an agreement to avoid court proceedings.
Question: Section 25 Notice: When can the landlord or the tenant apply to the court for a new tenancy?
Answer: S25 Notice - The landlord or the tenant can apply to the court as soon as the tenant receives the s25 notice.
Question: Section 26 Request: When can the landlord or the tenant apply to the court for a new tenancy?
Answer: S26 request - Where the tenant has served a s26 request on the landlord the landlord can apply to the court as soon as he has been served with the s26 request. On the other hand the tenant cannot apply to the court until the landlord has served a response (i.e. a counter-notice) on the tenant or until a period of two months has elapsed after service of the s26 request.
We would however advise that the parties seek professional advice and consider negotiating an agreement to avoid court proceedings.
Question: Is there a deadline for the landlord or tenant to apply to the court?
Answer: S25 notice: Where the landlord has served a s25 notice the deadline for the parties to apply to the court is the date the landlord has put in the s25 notice for ending the old tenancy.
S26 Request: Where the tenant has served a s26 request the deadline for the parties to make the court application is the date the tenant has put in the s26 request for the start of the new tenancy. If no application is made by this date the tenant will lose his right to renew the tenancy.
Extension of deadline by agreement: The parties are entitled to extend the deadline for the applications to the court however they must do this in writing before the expiry of the old deadline. Whilst the parties can agree further extensions, any extension agreed must be done before the prior agreed extension expires.
Question: For what reasons can a landlord refuse to grant a new tenancy?
Answer: A landlord has the right to oppose the tenant’s statutory right to a lease renewal on any of the grounds set out in section 30(1) of the 1954 Act the LTA 1954. These include:
breach of tenant's obligations – this applies where the tenant has not kept the property, has been persistently late in paying the rent or has failed to keep other lease obligations;
alternative accommodation - where the landlord has offered to give the tenant suitable alternative accommodation;
consolidation of the holding - where a sub-tenant who is occupying part of the premises applies for the grant of a new lease, but the landlord wants to sell or let the premises;
possession is required for demolition or reconstruction – where the landlord wishes to demolish or rebuild the premises. In some cases the tenant could remain in occupation if he or she agrees to allow the landlord access to the premises to carry out the work, or the tenant has accepted a new tenancy of an economically separate part of the premises, thereby enabling the landlord to carry out the work; and
where the landlord wishes to occupy the premises themselves or use the premises for their business.
The landlord needs to specify the ground of opposition at the outset and cannot subsequently change the ground of opposition if a ground has already been specified. The landlord can only use the ground(s) he has identified in the section 25 notice or in the response to the tenant's section 26 request for a new tenancy
Question: Can the landlord and tenant agree the terms of the new tenancy?
Answer: Yes, the landlord and the tenant can agree the new terms in writing and ask the court to make an order in the proposed terms. If they are unable to agree terms or all the terms the court will settle any terms, they have not been able to agree. The factors the court will consider are the current market value of the property, the terms of the current tenancy and all the relevant circumstances.
Question: If I am refused a new tenancy can I claim compensation from my landlord?
Answer: Yes, you can in certain circumstances. However, you must meet certain criteria and can only claim compensation from your landlord if your landlord has successfully opposed your renewal application on certain grounds only.
The compensation that you will get will depend on how long you have been in business at the premises and is based on the rateable value of the premises you occupy.
If you have been in the property for less than 14 years you will receive a sum equal to the 'appropriate multiplier' (see the regulations at www.gov.uk) times the rateable value of the premises at the end of your tenancy; If you have been in the property for more than 14 years or more, you will receive twice the amount that you would have received if you had been in the property for less than 14 years.
Specialist Commercial Property Lawyers
How Pure Business Law can help?
We are specialist Commercial Property Law Solicitors based in Bedford and operate nationally. Our commercial property lawyers are experienced in acting for landlords and tenants in business lease renewals. As a landlord or tenant , it is essential that you get legal advice at the outset of the process to enable you have a clear strategy so that you can achieve the best commercial outcome.
Please get in touch with our commercial property solicitors on 01234 938089 or email us at enquiries@purebusinesslaw.co.uk and a member of our team will get in touch.
Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.