Security of tenure - to secure or not to secure

Security of tenure in the sphere of commercial property leases, is the right for a tenant to continue to occupy their commercial premises notwithstanding the end of the contractual term of the lease. This is as a result of section 24-28 of the Landlord and Tenant Act 1954 (the “Act”)

At the end of the contractual term, a statutory tenancy continues, which can only be determined for one of the grounds set out in in the Part II of the Act (the “Grounds”).

The tenant has the right to request a new lease on substantially the same terms as the current lease. The landlord can only refuse if it has a ‘ground’ on which it can rely.

Effects

Following the end of the contractual term, the tenant can remain in the property on the same terms as the current lease, until it is ended under one of the ‘grounds’ below.  These are as follows:

1. The property is in disrepair;
2. There are arrears of rent;
3. Other breach of tenant’s covenant;
4. The landlord is offering suitable alternative accommodation;
5. The tenancy was created by a sub-letting of part of the property;
6. The landlord intends to redevelop; or
7. The landlord intends to occupy the property themselves.

It is worth noting, that a landlord’s break clause will only terminate the contractual tenancy.  For the landlord to recover the right to the property, they will also have to serve a section 25 notice (as set out in the Act) setting out one of the grounds to bring the tenancy to an end.

When acting for a landlord

It is generally preferable for a lease to exclude security of tenure from a landlord’s perspective for several reasons, some of which are set out below:

1. The landlord has the certainty of being able to recover possession of the property at the end of the term, unless they are willing to grant a new lease. 
2. Any new lease can be on new terms, whereas a renewal lease (one granted after the expiry of a protected tenancy) must be on substantially the same terms and no more onerous than the lease it replaces. It can, in general, only be updated to reflect a change in law. In an era where environmental clauses are becoming more important, being able to update a lease to include such provisions, is important to many landlords, particularly those of multi-let buildings.
3. In the case of multi-let buildings, it allows the landlord to ensure conformity of leases and updating as required.
4. Obtaining possession back from a tenant with a secure tenancy can be expensive and time-consuming. Proving any ‘ground’ as a reason for recovery of possession can be difficult. In addition, ‘non-fault grounds’ may result in the landlord being required to pay the tenant in accordance with the statutory requirements, based on the length of the tenant’s occupation and the rateable value of the property. Often, a landlord may simply pay a tenant to relinquish its rights under the Act.

When acting for the tenant

A tenant, on the other hand, wants business stability. That means: 

1. They can continue to use the property notwithstanding the expiry of the lease and don’t have to relocate to new premises at great expense
2. The terms of their lease will remain largely the same, but the landlord does have the right to charge market rent
3. The landlord cannot effectively force them to leave the property by trying to impose a draconian lease
4. They can upgrade the property as required, safe in the knowledge that they will have the benefit of those upgrades going forward
5. They can often roll-over dilapidations into the new lease.

The renewal procedure

Just as a tenant will want to assure itself of continuity of occupation for the purposes of its business, where a tenant wants to remain in occupation after the end of the lease term, the landlord will want to ensure that a lease is in place. 

The renewal procedure allows both parties to have some control. The landlord can serve notice to determine the lease or offer the tenant renewal lease on terms set out in the notice (a “Section 25 Notice”).  The tenant can serve a notice requesting that the landlord grant a renewal lease on terms as set out in its notice (a “Section 26 Notice”).  Whichever is served first, sets the timeframe and tone for the upcoming negotiation.  Once a Section 25 Notice has been served, the tenant cannot serve a Section 26 Notice, and vice versa. Given the specific timeframes attached to either notice, whether and when to serve one can be a tactical matter.

How HCB Solicitors can help

The above information forms only a small part of a much larger topic, with tactics and pitfalls both present. At HCB Solicitors, we can advise on this matter - whether it be before the grant of a lease, during its course or after it has expired. To find out how we can support you, get in touch.