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.
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.
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.
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.
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 mont