As a commercial landlord are you aware of the procedures that need to be followed to terminate or renew a commercial lease?
If, as a landlord, you wish to terminate a lease, you need to consider the security of tenure granted to your business tenants by Part II of the Landlord and Tenant Act 1945, as this affects how you can deal with the future of your premises.
What is security of tenure?
The Landlord and Tenant Act 1954 gives a commercial tenant the right to renew their lease and remain in their business premises after their lease has expired. There is, however, a possibility for you and your tenant to contract out of the Act if you both wish to do so, and this will exclude the lease from the security of tenure provision.
Is your lease ‘contracted out’ of the Landlord and Tenant Act?
Only if you and your tenant have agreed to ‘contract out’ – something you will both have had to agree to when signing the lease. If you did, then as a landlord you do not have to renew your tenant’s lease at the end of the lease term and can choose whether to offer a new lease on different terms or obtain vacant possession.
What if your lease is not contracted out?
The procedure relating to termination of a lease where a renewal is opposed can be complex. You cannot simply give your tenant notice to leave and instead you must prove at least one of these seven grounds as set out in Section 25 of the Act:
- Your tenant has not carried out repairs as detailed in the lease
- Your tenant has persistently not kept up with their rent
- Any other breaches of the lease agreement
- You are able to provide your tenant with alternative premises
- The tenancy is a sub-let and you need to take possession of the whole property to achieve a higher rent
- You wish to demolish or reconstruct your property
- You wish to use the property for your own purposes
It is important for Landlords to be aware that compensation may be payable to a tenant, depending upon the ground that is being relied upon. In addition, the level of supporting evidence in proving the ground being relied upon may vary as the test for proving certain grounds are higher than others.
Renewing the lease
A tenant has a statutory right to a new lease at the end of the contractual term where a lease has not been ‘contracted out’. If you have not agreed the terms of the renewal lease by the date that the lease expires, you will need to apply to court in relation to agreeing the terms of the renewal lease.
Timing is of the essence in relation to the service of notices to properly initiate renewal and/or termination of a commercial lease. Regaining property from 1954 Act-protected tenants can be a lengthy process, and if you wish to develop your property you should consider the implications when first entering into a commercial agreement.