Landlord and Tenant – What protection does the law provide?
Under the Landlord and Tenant Act 1927, the lettings market was weighted heavily in favour of the landlord, meaning that only tenants who could demonstrate sufficient goodwill, such that compensation for the end of their tenancy would be inadequate, were entitled to renew their tenancy.
The 1954 Act was introduced to strike a fairer balance between the landlord and tenant in business lettings. Now, if a business tenant wants to remain in occupation of its rented premises at the end of its lease term, the tenant can do so as long as the lease qualifies for protection and the tenant complies with specified procedures set out in the act.
Tenants who stay in occupation of the property passed the contractual expiry date (the ‘CED’) of their lease are said to be ‘holding over’. If a lease is protected by the act, then Landlords are only able to end commercial leases if they can prove that one or more of the grounds specified by the 1954 Act exist. Some of these relate to the ‘fault’ of the tenant, whereas others envisage the landlord recovering the premises for its own occupation or redevelopment.
Protection provided by the Landlord and Tenant Act 1954
Section 24(1) of the LTA 1954 affords two principal layers of protection to tenants whose leases are covered by the Act:
- The tenancy will continue after the CED of the lease until terminated in one of the ways specified by the 1954 Act and,
- The tenant will also have the right to apply for a new tenancy on termination of the current tenancy.
What leases does the LTA apply to?
LTA 1954 applies to “any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes”. The only exception to this is if the parties have agreed that they will contract out of the Act.
What are ‘Contracted out’ tenancies?
Under Section 38(A), the landlord and tenant can agree to exclude the lease from the protection of the 1954 Act prior to the grant of the lease. This is typical for short-term lettings where the landlord wants to be certain it can regain the premises at the end of the lease term.
The agreement to contract out must be carried out in accordance with the following procedure as set out in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (the ‘Reform Order’):
- the landlord must serve a warning notice on the tenant at least 14 days before the tenant becomes bound to enter into the lease (i.e. before it completes the lease or any agreement for lease). It is considered good practice to attach a copy of the agreed draft lease to the notice;
- the tenant must sign a simple declaration stating that it has received and accepted the consequences of this notice;
- the lease must contain:
- a) wording that the parties have agreed to exclude security of tenure; and
- b) reference to both the warning notice and the tenant’s declaration.
Where time is short, the 14 day period of the landlord’s warning notice can be waived. Then, instead of the simple declaration by the tenant, a statutory declaration must be made, in front of an independent solicitor, to the effect that the warning notice has been received and the tenant accepts the consequences. Again the lease must contain the wording referred to at (a) and (b) above. This shortened procedure is the most frequently used in practice.
The decision as to whether or not a commercial lease is contracted-out from the protection of the 1954 Act will be a part of the normal negotiation process prior to the grant of a lease. A protected lease could potentially command a higher rent than a contracted-out lease.
How can a tenancy be terminated under Landlord and Tenant Act 1954?
Section 24 provides that a protected tenancy can only be terminated in one of the ways specified by the 1954 Act. This is done by service of notice, the main notices are:
(1) Landlord’s notice under Section 25
This is a specific notice that is served by the landlord on the tenant. It will terminate the current tenancy on a date specified in the notice and informing the tenant either:
- that the landlord will not oppose the tenant’s application for a new tenancy (‘friendly notice’); or
- that the landlord will oppose the tenant’s application for a new tenancy and on which 1954 Act grounds of opposition (‘hostile notice’).
The s.25 hostile notice can be served before or after the CED provided:
- the specified termination date is no less than six months and no more than twelve months from the date that the notice is served; and
- the specified termination date does not precede the CED. The specified termination date is also when the s.25 notice expire.
The specified termination date is also when the s.25 notice expires, so you may also see this referred to in practice as the ‘notice expiry date’.
(2) Tenant’s request for a new tenancy under Section 26
This is a notice, served by the tenant on the landlord, terminating the current tenancy and requesting a new tenancy (specifying key terms of the new tenancy). The s.26 request has to be in statutory prescribed form.
The s.26 request can be served before or after the CED provided:
- the proposed commencement date specified in the notice is not less than six months and not more than twelve months from the date that the notice is served; and
- the proposed commencement date in the notice does not precede the CED. The proposed commencement date is effectively the date on which the s.26 notice expires, so you may also see this referred to as the ‘specified commencement date’ or the ‘notice expiry date’.
(3) Notice by the tenant terminating the tenancy under Section 27
This is a tenant’s notice, served on the landlord, simply to terminate the current tenancy without renewing it. This notice is only necessary if the tenant does not plan to vacate the premises by the CED (s.27(1A)). This notice does not have to be in statutory prescribed form.
A lease which has been excluded from the protection of the Act will expire on the term expiry date stated in the lease (or earlier if any break right is exercised) and will not benefit from the continuation tenancy conferred by the Act. Accordingly:
- the tenant will have no right to carry on his business from the premises or to remain there;
- unlike a lease with security of tenure under the Act, the landlord has complete discretion whether he grants a new lease to the tenant and does not have to give any reason for refusing to grant a lease or explain why he wants the premises back;
- if the landlord is willing to grant a new lease, there is no presumption that this will follow the terms of the previous lease.
If the tenant remains in occupation of the premises, which is not what the landlord wants, then the tenant would be a trespasser and would therefore be liable to the landlord for damages. The landlord would also be entitled to obtain a court order requiring the tenant to vacate.
If you are in negotiations to take or grant a commercial lease, and you want to know whether you should be inside or outside of the act, or what the options or benefits are, then please let us know and we would be happy to give you further information.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.