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Bitesize Blog - security of tenure - commercial leases

Security of Tenure – Commercial

The default position in law is that the lease does not automatically end and will become a periodic lease upon the basis that the term of the lease will roll over and apply unless and until it is formally surrendered or renewed on different terms.

Part II of the LTA recognises that protection is necessary for business tenants since they stand to lose any goodwill they may have built up, and much of the value of their stock and equipment, if they have to leave the premises when the contractual date of the lease expires. Accordingly, the Act gives business tenants a right to renew their tenancies, at a full market rent.

The cornerstone of this protection is section 24, which provides that a business tenant's existing lease is continued until terminated in accordance with the Act. Where such a termination occurs, business tenants are given a right to renew their leases. This right is activated by the service of a statutory notice from either the landlord or the tenant. Until that step is taken, the current tenancy is automatically continued

The tenant's right to renew his tenancy can be resisted by the landlord only on one or more of the seven grounds of opposition set out in the Act.[4] If the landlord fails to establish any of these grounds, the tenant will be entitled to a new tenancy. The terms of the new lease will be agreed by the parties, or (if they cannot agree) by the court in accordance with the rules set out in the Act.

These are set out in s 30(1)(a) to (g). Briefly, they are as follows:

(a) tenant's failure to repair,

(b) persistent delay in paying rent,

(c) other substantial breaches by the tenant,

(d) availability of suitable alternative accommodation,

(e) the tenant is a sub-tenant of part of the property originally let and the landlord can obtain a better rent by re-letting the property as a whole,

(f) the landlord's intention to demolish or reconstruct the premises, and

(g) the landlord's intention to occupy the premises himself either for the purposes of his business or as a residence

The lease can be used to vary default position at the expiration of the fixed term. As such, in negotiating Heads of Terms consideration must be given as to whether or not the landlord wishes to contract out of the Act which means that the Tenant effectively loses the security of tenure & the automatic right to seek a lease renewal at end of fixed term. If so, the landlord must serve a contracting out notice, normally along with the draft lease, on the tenant who must swear a stat dec confirming receipt and understanding of it and provide the sworn declaration to the landlord as confirmation of receipt on or before completion of the lease.