Since the Landlord and Tenant Act 1954 came into force most tenants of business premises have had statutory security of tenure based on the principle that established businesses need to be reasonably secure in their rented premises for the economic good of the country.
If you are a business tenant (and that covers most lettings that are neither residential nor agricultural) you will generally have a right to stay on in your business premises when your lease or tenancy arrangement comes to an end until such time as a County Court orders that you vacate the premises (But please see the last paragraph below - Exclusion from Statutory Renewal Provisions). This is because most business leases that are covered by the 1954 Act have two layers.
The top layer is the contractual arrangement that was made between the landlord and the tenant. This is ended in whatever way was agreed in the original contract. If the tenancy was for a fixed term, the passing of that amount of time brings about the end of the contract. If it was for a period that continued year by year the landlord can give notice bringing the contractual tenancy to an end.
The second layer is a statutory tenancy that runs alongside the contractual one. This statutory tenancy does not end when the contractual tenancy ends, but continues until the statutory requirements have been duly completed.
Generally it is the landlord who initiates the procedure serving a notice under Section 25 of the Act to bring about the end of the statutory tenancy as well as the contractual one. The notice must make it clear whether or not the landlord is prepared to consider giving the tenant a new tenancy - if so the core terms must be set out in the notice.
If the landlord is not prepared to agree to grant a new tenancy then the notice must state that fact and must also indicate the grounds on which the landlord will oppose the tenant's application for a new tenancy.
The grounds for opposition are set out in the 1954 legislation and fall into two separate groups. The first group indicate that the tenant has been a bad tenant and therefore should not have any right to claim a new tenancy. If the landlord manages to make out one of these grounds, the tenant cannot claim any compensation from the landlord for loss of the opportunity to renew.
The second group of grounds reflect the fact that the landlord may want the property back for his own use or for re-development. Provided the landlord can make out these grounds the tenant will not be allowed to stay on, but may be entitled to claim compensation from the landlord. The compensation is linked to rateable value and can help to offset some of the costs involved in relocating to other premises.
If the landlord is prepared to offer a new tenancy, the tenant does not have to take it on the terms that the landlord sets down. The presumption is that the lease will be renewed on the same terms as the existing lease subject to a reviewed rent, but there is nothing to stop a tenant looking for a compromise arrangement that better suits his new business lease. If the tenant took over the lease from someone else this may be his first opportunity to re-negotiate terms. Ultimately, if the terms for the new lease cannot be agreed by negotiation a County Court application will lead to a Judge setting out what the terms should be.
Before the 1954 Act reforms there was a strict timetable for serving notices on making applications to the County Court. Those timetables have now largely gone provided the parties agree a new written timetable that suits their own needs. This reduces costs and increases flexibility for landlords and tenants, giving plenty of time for negotiations where there are real issues between parties, but allowing a tenant in particular, to force the pace if a landlord is just unwilling to negotiate. This may be particularly relevant where a tenant is waiting to sell his business or assign his existing lease to move to new premises, but cannot do so until the terms of the new lease are agreed.
If a landlord indicates that he is going to oppose the grant of a new tenancy, the grounds raised need to be carefully considered to ensure that they are genuine, and that the right to compensation is not inadvertently lost or excluded.
If the landlord is entitled to refuse to grant a new lease then it may still be possible to negotiate additional time, whether informally by delaying the eviction timetable or by some sort of short term tenancy agreement, to enable the tenant to meet his own relocation requirements.
Whilst some landlords are quite happy to let their premises on a long-term basis, others are concerned about the tenant's opportunity to have a statutory renewal. In those circumstances it is possible by negotiation with the tenant to exclude the lease from the statutory renewal provisions.
An agreement to exclude the provisions must occur before the tenancy starts and before there is any question of moving into the premises or taking rent. The format for recording the agreement is strictly prescribed and failing to follow it will almost certainly be fatal to the exclusion of the lease.
Although of no concern to the tenant, it could have a serious impact on a landlord who is expecting to get his premises back without any difficulty at the end of the term.
For further information please contact Gillian Jones.