SQE1: PROPERTY PRACTICE

Topic 17. Security of

Tenure and Business
Leases
Law Training Centre (Kent)

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LAW TRAINING CENTRE (KENT) LTD Security of Tenure and Business
SQE 1: Property Practice Leases
Version: 1

Learning Content

◗ What is Meant by the Term ‘Security Of Tenure’

◗ What the Implications of Security of Tenure Will be for The Client
◗ What Situations Might See an Attempt to Contract out of The Security of
Tenure
◗ What Happens at the End of a Client’s Protected Tenancy?
◗ The Statutory Grounds for Terminating a Protected Tenancy

An overview of the provisions of the Landlord and Tenant Act 1954

The Landlord and Tenant Act 1954 (the “Act”) regulates the way in which
business tenancies can be terminated and gives business tenants security of
tenure. Major changes to the provisions of the Act came into force in 2004.

What is security of tenure?

• The right for a tenancy to continue automatically at the end of the

contractual term, on the same terms and at the same rent, until it is
terminated in accordance with the Act.
• The right for the tenant to apply to court for a new tenancy which the
landlord can only oppose on certain grounds (some of which involve the
payment of compensation to the tenant if he has to leave).

Which tenancies are protected?

Broadly, there are three requirements:

• A tenancy – this is typically a lease, but other agreements may be tenancies

where they grant exclusive possession for a term and at a rent. Certain
tenancies do not qualify – see Excluded tenancies below.
• The tenant must be in occupation.
• Occupation must be for the purposes of a business.

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LAW TRAINING CENTRE (KENT) LTD Security of Tenure and Business
SQE 1: Property Practice Leases
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Excluded tenancies

The Act does not protect certain tenancies, including:

• Tenancies which have been “contracted out” – see Contracting out below.
• Fixed term tenancies for less than 6 months, unless there are renewal or
extension provisions, or the tenant has already been in occupation for
more than 12 months.
• Tenancies at will, where occupation is permitted but no rent is paid and
either party can terminate at any time. They can arise where a tenant takes
occupation before a lease is formally granted.

Contracting out

A court order is no longer required to exclude the security of tenure provisions of

the Act. Instead, the landlord must serve a notice on the tenant in a prescribed
form and the tenant must sign a declaration that he has received the notice and
accepts the consequences of the agreement to contract out. If the notice is
served within 14 days prior to the grant of the tenancy or any agreement to grant
it, the tenant must make a statutory declaration before an independent solicitor.
The lease must contain reference to the exclusion agreement, the notice and the
declaration.

Terminating a protected tenancy

A protected tenancy can only be terminated in one of the ways set out in the Act.
The most usual ways are:

By the tenant

If the tenant vacates before the end of the contractual term, there is no tenancy
to be continued under the Act and no notice is needed. However, simply vacating
after the end of the contractual term will not bring the tenancy to an end.
Otherwise, to terminate a protected tenancy the tenant may serve a notice on
the landlord:

• Before the end of the term – no less than three months before the end of
the term, the tenant can serve notice on the landlord to end the tenancy
on the expiry of the contractual term.
• After the end of the term – the tenant can serve notice on the landlord to
end the tenancy on any date giving at least three months’ notice.

If the tenant serves either of these two notices, he may not then request a new
tenancy (see Requesting a new tenancy below).

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LAW TRAINING CENTRE (KENT) LTD Security of Tenure and Business
SQE 1: Property Practice Leases
Version: 1

By the landlord

The landlord can serve a statutory notice to terminate the tenancy. The notice
must be served not less than six months, nor more than twelve months, before
the date of termination specified in it, which cannot be before the contractual
term end date.

The landlord’s notice must state whether the landlord will oppose an application
by the tenant for a new tenancy, and if so, on which ground(s) of opposition.

Requesting a new tenancy

Rather than wait for the landlord to serve a notice, the tenant can request a new
tenancy, which may have tactical advantages for him. Not all tenants can request
a new tenancy. A counter-notice is required from the landlord within two months
if the landlord wants to oppose the tenant’s application. The counter-notice must
state the ground(s) of opposition.

Grounds of opposition

The most frequently used grounds are:

• That the landlord has a firm intention to demolish or reconstruct the

premises at the end of the tenancy and cannot do so without obtaining
possession from the tenant.
• That on termination of the current tenancy the landlord intends to occupy the
premises for his own business purposes.

If either of these grounds are successfully used by the landlord, compensation

may be available for the tenant.

Other grounds include the tenant’s failure to repair the premises, the tenant’s
persistent delay in paying rent, the tenant being in substantial breach of other
obligations or that the landlord has offered alternative accommodation.
Either party can apply to the court within prescribed time limits to have the
matter determined, either to terminate the tenancy or to apply for a new
tenancy. It will usually be the tenant who applies to the court for a new tenancy
to be granted, and he must do so to obtain a new tenancy even if the landlord
does not oppose one.

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LAW TRAINING CENTRE (KENT) LTD Security of Tenure and Business
SQE 1: Property Practice Leases
Version: 1

So, we see that when taking a lease on business premises, the tenant has a
statutory right under Part II of the Landlord and Tenant Act 1954 (1954 Act) to
remain in the premises at the end of the contractual term and apply to the court
to renew its tenancy. When entering a new lease the 'security of tenure' may be
specifically excluded before the lease is entered into. In order to “contract out” of
the 1954 Act, the Landlord must serve a warning notice on the tenant that the
tenancy will not benefit from security of tenure. If the notice is served on the
tenant at least 14 days before the lease is entered into then the tenant may make
a simple declaration that it has received the notice and accepts the consequences
of entering into a lease which has been contracted out.

If the warning notice is not served on the tenant at least 14 days before it enters
into the lease, then the tenant must make a statutory declaration in the presence
of an independent solicitor or commissioner for oaths. In practice, the nature of
commercial property transactions requires this second form of declaration to be
made.

What are the implications of this for the client?

If security of tenure is excluded from a lease of business premises, then the

tenant will be required to vacate the property once the lease comes to an end.
The tenant may only remain in the property if the landlord has agreed to grant a
new lease. The tenant will not be entitled to claim compensation for loss of their
business premises unless the lease specifically provides for this right.

Both the landlord and the tenant should take great care to consider the effects of
the 1954 Act when negotiations are entered into at the commencement of the
transaction. In particular, the tenant should consider the importance of the
premises to the tenant’s business and the costs associated with locating to new
premises. If the property is an integral part of the tenant’s business, then they
may require the protection afforded in the 1954 Act.

Similarly, the landlord should have regard to the rights granted to a tenant
benefitting from security of tenure. If the landlord has an intention to sell the
property in the future, a sitting tenant with the benefit of security of tenure may
have an impact on the value or saleability of the property. Unless the landlord
intends to occupy the premises for their own purposes, there are limited grounds
permitted by the 1954 Act upon which the landlord may oppose a renewal of a
lease protected by security of tenure. Even if the landlord satisfies one of the
permitted grounds, they may be liable to compensate the tenant for loss of its
business premises.

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LAW TRAINING CENTRE (KENT) LTD Security of Tenure and Business
SQE 1: Property Practice Leases
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Why would tenants then, in a practical sense, consider security of tenure as

being important for them?

For tenants of a commercial property security of tenure is important because it

gives them peace of mind knowing they can invest and grow their business
without having to worry about vacating the property at the end of their lease. It
allows a tenant to establish a base of operations with a degree of permanence,
which is particularly important for customer facing businesses.

A protected tenancy does not automatically end upon the expiry of the original
term. Instead, the tenant may decide to ‘hold over’ and remain in occupation or
serve a ‘Section 26 request’ for a new lease. If a landlord cannot make out any of
the statutory grounds to oppose such a request, then the tenant has a right to a
new lease on terms to be agreed by the parties or to be determined by the court.

Why would a client’s landlord want a tenancy to be contracted out?

Landlords will often want the tenancy to be contracted out because it means that
they can have tighter control over their property. If a tenancy is contracted out a
landlord does not need any reason to ask the tenant to leave once the lease
expires. This is beneficial for a landlord who wishes to sell the property with
vacant possession or lease it to another tenant on more favourable terms. It is
also much more straightforward to sell property without an active tenant who is
trading from those premises.

How could the client’s landlord and the client contract out of security of
tenure?

Before entering a new lease, a landlord and tenant have the option to ‘contract
out’. This is achieved by the landlord serving notice on the tenant and the tenant
agreeing to surrender their statutory right to a new lease by signing/swearing a
declaration confirming that they understand the lease is being offered without
security of tenure. A clause will be included in the lease to reflect this. At the end
of their tenancy the tenant will be required to vacate the property unless the
landlord offers them a new lease.

By contracting out of security of tenure the landlord is not obliged to offer the
tenant compensation upon leaving the property.

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