What Is Security of Tenure and When Does It Apply?

The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (SI 2003/3096) sets out the procedure which the Landlord and Tenant must follow to contract out of the security of tenure provisions.

The procedure must be concluded before the landlord and tenant are contractually bound to enter into the lease. This means that if there is an agreement for lease that precedes the lease, the contracting out procedure must be followed before the agreement for lease is exchanged.

The procedure is as follows:

• The landlord must serve a warning notice on the tenant, excluding security of tenure;
• In response, the tenant makes a simple declaration or swears a statutory declaration agreeing that the security of tenure provisions are excluded from the lease;

• If the landlord served the warning notice less than 14 days before completion of the lease, or exchange of the agreement for lease, the tenant must swear a statutory declaration;
• If the landlord served the warning notice 14 days or more before completion of the lease, or exchange of the agreement for lease, the tenant can make a simple declaration or swear a statutory declaration;

• The lease will contain provisions referencing that it is contracted out.

To ensure that the contracting out procedure is followed correctly, landlords should consider the following points:

• Where should the tenant's warning notice be served?
  • Service of the warning notice should be on the tenant personally or by leaving it at or posting it to the tenant's last known place of abode. If service of the notice is on the tenant's solicitor, a landlord should ensure that the tenant's solicitor has written authority from its client to accept service of the warning notice.
• Are there multiple tenants?
  • If so, a notice must be served on each tenant, and each tenant must provide a declaration or statutory declaration.
• Does the tenant have a guarantor?
  • Most guarantee provisions in leases allow the landlord to require the guarantor to enter into a new lease in certain circumstances. These provisions amount to the guarantor being contractually bound to enter into a lease, so a warning notice must be served on the guarantor at the same time as the tenant, and the guarantor must also make a declaration or swear a statutory declaration.

Our commercial property solicitors regularly act for landlords and tenants where the contracting out procedure needs to be followed as the parties would like the lease to be excluded from the security of tenure provisions or, alternatively, in connection with statutory lease renewals where the tenant’s existing lease was not contracted out of the 1954 Act.