Whether your tenant has a right to a new commercial lease depends on whether Part II of the Landlord and Tenant Act 1954 (the Act) applies to the tenancy or whether the lease has been contracted out of the security of tenure provisions of the Act.
If the lease is not contracted out of the Act, the tenant of a business lease has a statutory right to a renewal lease at the end of the contractual term if it satisfies the criteria in section 23 of the Act.
The qualifying criteria in section 23 of the Act can be broken down as follows:
If the tenant satisfies the criteria and does not fall within any specific exclusions, the tenant will be entitled to a new lease at the end of the contractual term. But what does the above mean?
A tenancy is defined by section 69(1) of the Act as being created out of the freehold. A tenancy does not need to be in writing. However, it must be noted that the qualification of a tenancy for the purposes of the Act does not give the tenant the right to serve a section 26 request.
The term tenancy excludes tenancies at will, agricultural holdings, mining leases, service tenancies, fixed term tenancy, and tenancies contracted out of the Act.
To benefit from the protection of the Act, the tenancy must relate to the premises.
There is no definition of premises in the Act, but it is clear from case law that the term premises should be given a wide meaning. It is not just confined to buildings but can include open land. However, the premises must be capable of being occupied.
The tenant must occupy the premises for the purpose of a business.
There are two aspects to this (1) occupation and what this means in practice and (2) business and what this means in practice.
Occupation implies that there is a physical presence and control of the premises.
A tenant’s intention to occupy a business may satisfy the criteria. However, the tenant will only be entitled to a new lease if it is occupied. Therefore if a tenant vacates the premises, it must be determined whether the tenant is actually in occupation. If the tenant, for example, moves out of the premises for fitting out, likely, it will still be in occupation.
If the tenant sublets all of the premises, it will lose the protection of the Act as it will not be deemed to be in occupation. If the tenant underlets part, the tenant will not be able to request a new tenancy of that part of the premises.
An undertenant can request a new lease directly from the head landlord if it satisfies the criteria in the Act.
Suppose the premises are damaged because access cannot be gained or the premises are unsafe. In that case, the tenant will still be deemed to be in occupation so long as the tenant has no control over the events causing the damage and the tenant communicates to the landlord that it intends to reoccupy.
Business is given a wide definition by section 23(2) of the Act and includes sports clubs and charities.
The business carried on at the premises must be carried on by the tenant.
Some tenancies are specifically excluded from the protection of the Act. They include, amongst others, but most commonly:
If the lease has been validly contracted out of sections 24 to 28 of the LTA 1954, the tenant will not be entitled to a lease renewal. The agreement to contract out will only be valid if the statutory notice procedure is followed correctly.
The landlord can serve a notice according to section 40 of the Act to identify leases that might have statutory renewal rights. This notice allows the landlord to request details of any underleases that may have been created. The notice can be served on the tenant at any time in the last two years of the tenancy.
Myerson’s Property Litigation team are expert in commercial lease renewals. We have a wide range of experience in these cases and can help you to understand your options and guide you through the process, so please get in touch.
