Security of Tenure for Business Leases
When securing new premises, the future preservation and success of your business may hinge upon your security of tenure. Legal advice should always be sought prior to entering into a new business lease, as well as in relation to any security of tenure issues that may arise during the course, or upon expiry, of an existing lease.
What is ‘security of tenure’?
Security of tenure refers to the tenant’s right to remain in occupation of the business premises upon expiry of the lease term. In practice this means that you, the tenant, will have the right to renew your tenancy when your existing lease comes to an end.
The law governing security of tenure
Security of tenure for business tenants is a statutory right provided for by Part II of the Landlord and Tenant Act 1954. In broad terms, the 1954 Act will give you protection as a business tenant by allowing you to remain in the premises and renew your lease on the same or similar terms.
Subject to the provisions of the 1954 Act you will be afforded security of tenure by simply occupying the premises for the purposes of your business, even without a written lease. Under the Act a business is defined as ‘a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporate’.
With limited exceptions, premises occupied by a tenant for business use, whether for the whole or part of a property, fall within the provisions of the 1954 Act.
Can I remain in my business premises at the end of my lease?
Following expiry of an existing lease, if you are afforded security of tenure the tenancy will not automatically come to an end. If the lease is not brought to an end by you as the business tenant serving written notice to quit, you can continue to ‘hold over’ on the same terms as the existing lease.
Whilst your landlord may serve you with written notice to terminate your business tenancy, this must be in the prescribed form specifying the date at which the tenancy is to come to an end. Further, any notice served other than in accordance with the strict statutory procedure will not take effect. Under the Landlord and Tenant Act 1954 any notice to terminate must specify:
- whether the landlord is opposed to the grant of a new tenancy
- one or more statutory grounds for any opposition
- the landlord’s proposal as to the property to be comprised in the new tenancy (being either the whole or part of the property comprised in the current tenancy), the rent to be payable and the other terms of the new tenancy.
Can my business lease be renewed?
Under the provisions of the Landlord and Tenant Act 1954 relating to security of tenure, your business lease can be renewed by either agreement with your landlord or by application to the court.
However, any request made by you to your landlord for a new tenancy shall not have effect unless it is made in the prescribed form. This must set out your proposals as to the property to be comprised in the new tenancy (being either the whole or part of the property comprised in the current tenancy), the rent to be payable and the other terms of the new tenancy.
The 1954 Act also provides that within a specified period of time following your request the landlord may give you notice that s/he will oppose an application to the court for the grant of a new tenancy. Any such notice must state on which of the statutory grounds the landlord will oppose your application.
On what grounds can my landlord oppose the grant of a new business lease?
In the event that agreement cannot be reached, in order to ensure continued security of tenure you will need to make an application to the court. Under the Landlord and Tenant Act 1954 your landlord can oppose your application for a new tenancy on the following grounds:
- you are in substantial breach of your repairing, rental or other contractual obligations, for example, using the premises for a purpose not permitted by your lease
- your landlord has offered and can provide you with suitable alternative accommodation
- your landlord wants to let or sell the premises as a whole, and you occupy only part of the premises
- your landlord wishes to redevelop the premises
- your landlord wishes to occupy the premises.
In circumstances where the court refuses the grant of a new tenancy and you lose your security of tenure, you may still be entitled to statutory compensation.
On what terms can I renew my lease?
In the event that you and landlord can reach an agreement to renew your lease then you are free to renegotiate terms.
The grant of a new lease by the court is likely to be on the same or similar terms as your existing lease, with the exception of your rent.
The rent payable under your new tenancy can either be agreed between you and your landlord, or in default of such agreement will be determined by the court on the basis of what the premises may reasonably be expected to be let in the open market.
Can security of tenure be excluded under the terms of my lease?
Prior to entering into a business lease your landlord may be keen to exclude your security of tenure by ‘contracting out’ of the provisions of the Landlord and Tenant Act 1954. This may be, for example, where your landlord is looking to develop the property in the future or the lease is only short-term.
If you agree to forfeit your security of tenure you will lose your statutory right to renew your tenancy. Unless your landlord subsequently agrees to the grant of a new tenancy, the lease will determine on the expiry of the lease term.
The right to renew your lease is a valuable business tenant right providing security of tenure. As such, you should think carefully before agreeing to the lease being excluded from the 1954 Act.
What is the procedure for ‘contracting out’?
To exclude security of tenure a strict statutory procedure must be followed prior to signing the lease. Your landlord must first serve you with a warning notice in a prescribed form setting out the important legal rights that you are giving up. You will be required to sign a simple declaration, or alternatively swear a statutory declaration, depending on the length of time left prior to completing the lease.
In circumstances where the notice procedure is not correctly followed, or a declaration not signed, you will retain your security of tenure.
Can a ‘break clause’ affect my security of tenure?
Your business lease may contain a provision known as a ‘break clause’. This gives both you and your landlord the option to end the lease early by giving notice. This is common in longer leases where an option to terminate the lease prior to expiry of the fixed term is provided for after a specified number of years.
Whilst a break clause can be beneficial to you as a business tenant if, for example, you may wish to move premises in the future, a break clause in favour of your landlord could significantly threaten your security of tenure.
Should I seek legal advice?
The law governing security of tenure for business leases can be complex, not least the strict statutory provisions relating to notices, requests and declarations.
It is important that you seek professional legal advice regarding your rights and responsibilities before signing a business lease. It is a legally binding document with potentially far-reaching implications for the preservation of your business premises.
A specialist property lawyer will be able to expertly draft a new business lease to suit your business needs. They can also provide legal and practical advice on all aspects of the law relating to commercial leasehold property, helping to protect your security of tenure for the future.