Security of Tenure and the Commercial Lease

Generally speaking a tenant of a commercial property will acquire what is called ‘security of tenure’. This means that when the expiry date of the lease is passed the lease does not end but it continues by operation of the law. This period is usually referred to as ‘holding over’ until a new lease is entered into between the Landlord and the Tenant.

Security of Tenure provisions are dealt with by the Landlord and Tenant Act 1954 (the ‘Act’).

The lease can only be terminated by one of the procedures that are laid down in the Act. The reasoning behind the legislation is to protect the goodwill that a business tenant builds up by running a business from certain premises.

In order for a lease to acquire security of tenure certain conditions need to be satisfied:

  1. The lease must be for a fixed term or for a periodic term
  2. The premises must be occupied for business purposes and
  3. The premises must be occupied by the tenant.

If a landlord wishes to terminate a business tenancy then he has to give Notice in a prescribed form to the tenant. The Notice is served under Section 25 of the Act – as amended by The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (the ‘Order’). This Notice must comply with certain requirements, which are set out as follows:

  • be served by the ‘competent landlord’ (if the immediate landlord is the freeholder then that is the competent landlord – if the immediate landlord has a leasehold interest then he is only the competent landlord if his lease has more than 14 months left to run)
  • be served on the tenant or all of the joint tenants
  • be in the prescribed form, or one substantially to the like effect – there is a different form dependant on whether or not the landlord intends to oppose the grant of a new tenancy
  • state a date of termination which is no earlier than the contractual term date or a date upon which the landlord could have terminated the tenancy by a notice to quit
  • give a period of notice which is no more than 12 months nor less than 6 months before the specified date of termination
  • relate to the whole of the demised premises.

There are only certain grounds upon which the landlord can oppose an application by the tenant for a new lease:

  • if the tenant has not paid the rent on time
  • there has been some other substantial breach of the lease terms
  • the landlord wants the property back for his own occupation or to redevelop

If these can be established then the tenant will be barred from acquiring a new tenancy. There are other grounds of opposition which can be found on the Section 25 Notice. If any of these grounds can be established then the tenant would be barred from acquiring a new tenancy though the landlord would have to pay compensation.

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