I’m Going To Be A Commercial Tenant; Can My Landlord Get Me Out Of Here?

The answer to this question will depend on what terms, if any, are agreed between the parties before the lease or other commercial tenancy is entered into.   When agreeing terms for a commercial letting it is important to consider whether or not the tenant should benefit from security of tenure. 

What is security of tenure?

If a tenant of a commercial property benefits from security of tenure, then this means that the tenant has a statutory right to remain in occupation after the original lease terms ends and request a new lease on similar terms.  As a tenant with security of tenure (sometimes referred to as a protected tenant), if the landlord can establish a statutory ground for not renewing the lease, then the secure tenant maybe eligible for statutory compensation.  Such grounds include persistent rent arrears, failure to repair and maintain the property in accordance with the tenant’s obligations under the lease and the landlord wishing to occupy and/or redevelop the property.

How do I get security of tenure?

Security of tenure automatically applies to leases granted for a term exceeding 6 months unless the exclusion procedure is followed.  This should be covered in negotiations between the tenant and the landlord or landlord’s letting agent along with the length of the lease term, rent payable and repairing liability etc.  If a set of Heads of Terms has been produced, then check whether security of tenure is mentioned.  Look out for phrases such as “the lease is to be granted inside (or outside) the Landlord and Tenant Act 1954 (“LTA 1954”)” or “the tenant will benefit from the protection of the LTA 1954”.

What factors influence whether or not a letting benefits from security of tenure?

From a tenant’s point of view, the advantage of security of tenure is being able to make longer term business plans.  The longer the term and/or the more you are investing in the property e.g. in terms of fitting out or carrying out works to the building or the equipment and machinery to be kept in it, then it is more likely that you will wish to renew the lease at the end of the term. If you are only planning on staying in occupation for a short time, then security of tenure is less important.

From a landlord’s perspective, it will take into consideration the length of the lease term and whether your lease is of the whole or only part of a property.  If a building is multi-let, then the landlord is less likely to grant security of tenure in case it wishes to obtain full possession of the building in the future.

In some circumstances security of tenure will be dictated by the landlord’s own interest in the property.  If the landlord is a tenant itself and is granting an underlease, the head lease may oblige the landlord to ensure that any underletting is excluded for the purpose of security of tenure.  The terms of the lease can also influence the matter, e.g. if the lease includes a break clause that can be exercised by the landlord, then the lease cannot be protected – the two are mutually exclusive.

If you are in doubt as to what is reasonable then we would recommend that you seek advice from your own agent before Heads of Terms are finalised.

Negotiations have concluded and the lease will not benefit from security of tenure.  What happens next?

Where a tenant does not benefit from security of tenure the lease will be “contracted out” of the LTA 1954.  To do this the landlord (or it’s solicitor) will serve a statutory form of notice on the tenant and any guarantor.  The notice explains to the tenant and any guarantor that by entering into the lease, it will be giving up a right to renewal that it would otherwise have had.  The tenant and any guarantor will then respond to the notice by providing the landlord with a declaration (again, in a prescribed form) confirming receipt of the notice and agreeing that security of tenure will be excluded.  This procedure must be followed before the lease is completed.

My lease is about to expire and is contracted out but I want to stay – can I?

Maybe.  Just because a lease has been excluded from security of tenure does not mean that if you and the landlord can agree terms for a new lease you cannot stay in occupation.  Contact your landlord and commence negotiations at the earliest opportunity.  You need to allow sufficient time to find alternative premises and agree a new lease in the event that your current landlord is not agreeable to a renewal.

Time for reform?

The LTA 1954 was introduced post World War II at a time where commercial property was scarce due to damage suffered as a result of bombings.  As a result, there was an imbalance of bargaining strength between landlords and tenants, many of whom were attempting to rebuild their lives having returned from fighting. The aim of the LTA 1954 was to prevent landlords from evicting tenants at the end of their lease term only to then continue trading from the property themselves benefitting from the goodwill that the evicted tenant had built up.

The Law Commission began consulting on proposals to reform the LTA 1954 in November.  The consultation period has since closed, and we now await the outcome and to find out whether LTA 1954 still serves a purpose in the modern world.  Watch this space.

How can we help?

It is crucial to understand your rights and obligations before a lease is completed.  If you are considering letting a commercial property, please contact our Commercial Property department by emailing info@bhwsolicitors.com or calling 0116 289 7000.

Please note that this article only relates to leases of business premises and different rules apply to residential lettings.