What Is Security of Tenure and When Does It Apply?

Security of Tenure

Having security of tenure for commercial property means that the tenant will have a statutory right to renew its lease at the end of the contractual term. This right is granted by Part II of the Landlord and Tenant Act 1954 (LTA).

Security of tenure only applies to a Tenant who is in occupation of premises used for the purpose of a business. The tenancy must be for a term of more than six months and must not fall into any other exclusion stated in the LTA 1954.

It is worth noting that the landlord can oppose the grant of a new lease on certain grounds, such as:

if the landlord wishes to redevelop the property or wishes to occupy the property themselves. The grounds for opposition are set out in section 30(1) of the Landlord and Tenant Act 1954.

Can a lease be contracted out of the Security of Tenure provisions?

A landlord and tenant can agree that the lease will be 'contracted out' of the LTA 1954 and must follow the correct procedure when doing so. If the lease is contracted out correctly, the lease shall expire at the end of the contractual term, and the tenant shall have no statutory right to renew the lease. 

Many landlords choose to follow this procedure as it gives them more control and certainty over who is occupying their property and for how long. 

How to contract out correctly?

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 is as follows:

• The landlord must serve a warning notice on the tenant, excluding security of tenure;
• In response, the tenant signs a simple declaration or a statutory declaration agreeing that the security of tenure provisions are excluded from the lease;
  • If there are less than 14 days before completion of the lease, the tenant must complete a statutory declaration; and 
  • If there are 14 days or more before completion of the lease, the tenant can complete a simple declaration.

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.
• Does the tenant have a guarantor? - If so, a warning notice must also be served on the guarantor, who must also provide a declaration.