Beth Reid, Solicitor, explains more about the Security of Tenure!
It is often thought that the content of a lease is all that governs a commercial landlord and tenant arrangement. After all, it contains exactly what has been agreed by both parties in writing. However, unbeknown to many, the law still intervenes in what has already been agreed by the parties.
The Landlord and Tenant Act 1954 (‘the Act’) is one of the most powerful sources of law when it comes to commercial leases. Most significantly, it has the ability to grant commercial tenants Security of Tenure, even when this is not the intention of the parties.
As a landlord or a tenant, it is vital that you consider whether you are willing to commit to this effect. It is possible to exclude Security of Tenure from a lease – so don’t get caught up in the Act when you do not want to.
What is Security of Tenure?
Security of Tenure is a right deriving from the Act that actually allows the commercial tenant to remain in occupation of the business premises even after the term of the lease has come to an end. It also gives a tenant the automatic right to request a new lease on similar terms.
Where the tenant enjoys Security of Tenure, a landlord may only bring the lease to an end by following very specific procedures laid out in the Act. Even then, one of the limited statutory grounds for possession must be established, and in some circumstances compensation is payable to the tenant.
When does it apply?
In brief, Security of Tenure applies to tenancies where the following apply:-
- There must be a ‘tenancy’ such as a lease;
- The premises in question must be occupied by the tenant;
- The premises must be occupied for business purposes.
As a result, most standard commercial leases will attract Security of Tenure even when this is not stated within the lease.
‘Contracting out’
The good news is that there are ways to ensure that Security of Tenure does not apply to your commercial lease, meaning a tenant must leave the business premises once the term of the lease comes to an end and there is no automatic right for a tenant to apply to renew the lease.
One of the most effective ways to avoid Security of Tenure is to ‘contract’ your lease out of the Act. The lease must be for a fixed term and for leases granted on or after 01 June 2004, there is a strict notice procedure that must be followed:-
- The landlord must give the tenant notice in a prescribed form (this means the exact wording provided by law must be used for the notice to be valid). It contains a ‘health warning’ that warns the tenant that the lease is to be without Security of Tenure;
- The tenant must then sign a declaration (again in prescribed form) agreeing that they have received the notice from the landlord and that they accept the consequences of contracting out of the Act. If notice is given to the tenant less than 14 days before the grant of the lease (or an agreement to grant the lease) the tenant must make a statutory declaration before an independent solicitor.
The lease must also include a reference to both the notice of the landlord and the declaration of the tenant.
If the above is not complied with, and the lease is entered into, Security of Tenure will be granted.
As there are very strict rules and time limits to comply with, it is always advisable to seek the assistance of a solicitor should you wish to serve notice or sign a declaration. If the lease is not contracted out correctly, you are at risk of being affected by Security of Tenure.
How can we help?
At Heringtons, our commercial lawyers have the expertise to provide you with the advice you need in order to decide whether Security of Tenure should apply (or already applies) to your lease. We are able to advise on various business arrangements as well as contracting your lease outside of the Act, meaning your tenancy will not be subject to Security of Tenure.
For advice on entering into business agreements, or commercial matters in general, please contact us on 01424 772401
NB The information on the website of Heringtons LLP is for information only and does not constitute legal advice.