Business leases – the dangers of security of tenure

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Granting a business lease

As a Landlord of commercial property you may wish to grant a new lease to a business tenant. However it is important to bear in mind that the grant of a new lease to a tenant occupying the property (even if it’s only part of the property) for business purposes, will fall within the provisions of the Landlord and Tenant Act 1954; unless the Act is specifically excluded. In fact a business tenant can be afforded security of tenure without even signing a lease – simply by occupying your property.

The Act in broad terms gives protection to business tenants, allowing the tenant to stay in the property at the end of the term and giving them the right to apply for the grant of a new lease on the same terms (save for rent which will be increased or deceased according to the open market rent on renewal). This is known as security of tenure.

Grounds for refusing a new business tenancy

The Landlord only has a limited number of grounds to refuse to grant a new lease to the business tenant and those grounds must be evidenced. The grounds are:-
1. where the landlord requires the property back either for development purposes, or to occupy himself;
2. where the tenant has a history of non payment of rent, or not complying with the lease obligations;
3. where premises have been split up by subletting into a number of units and the whole premises would command a higher rent if let together under one lease.

You maybe happy to grant security of tenure to your tenant, for example if your property is a long term income earning asset. However, as a tenancy granted on these terms will be renewable it is important that the lease is expertly drafted by an experienced solicitor to ensure it stands the test of time.

Avoiding security of tenure

You can grant a Lease without giving the tenant security of tenure by contracting out of the Act and serving the tenant with a “ health warning” notice in a prescribed form. This warns the tenant they are giving up important legal rights. The tenant must then complete a simple declaration or a statutory declaration, depending on when the tenant is to start the tenancy. Specialist legal advice should be sought in respect of this to ensure the declaration is valid. If contracted out, the lease will determine on the expiry of the lease term.  This gives the Landlord greater flexibility and the tenant no security to stay at the end of the term.

The danger of ‘holding over’

There is still a danger where a tenant remains in occupation at the end of a lease that has been contracted out. The tenant could inadvertently gain protection under the Act by what is called “holding over”; that is staying in occupation at the end of the term. The landlord needs to start negotiations for a new lease whilst the term is still continuing and in the interim the tenant then does not gain security of tenure to stay under the Act.

It is therefore imperative to seek legal advice before letting the tenant occupy your property and to ensure the notices, declarations and lease fully protect your interests.

Slee Blackwell have a strong commercial property team who are familiar with the Landlord and Tenant Act and are experienced in advising landlords who wish to avoid security of tenure inadvertently arising .

If you require their assistance then please contact Helen O’Leary 01271 349926 or Emma Reed on 01271 349940 for a free initial consultation.