Lease renewal and the Landlord and Tenant Act 1954

The first question is one most people cannot answer about their own lease: is it protected, or was it contracted out?

Security of tenure, and whether you have it

Part II of the Landlord and Tenant Act 1954 gives most business tenants security of tenure — a right to remain when the contractual term expires, and a right to a new lease unless the landlord establishes one of the statutory grounds of opposition.

That right can be excluded, but only by following a prescribed procedure before the lease is granted — a warning notice served on the tenant and a declaration made by the tenant, in the required form and within the required timescale.

This is where the problem usually is. Contracting out is done at the start, by people focused on getting into premises, and frequently done badly — a notice served too late, a declaration that should have been a statutory declaration, a signature by the wrong person, or a procedure not followed at all.

The consequence surfaces years later, at renewal, when a great deal turns on it. A landlord who believed the tenancy was contracted out and finds it is protected has a different asset from the one they thought they had. A tenant told they must leave may have a right to stay.

If you are approaching the end of a term, establish this first. It determines everything else, and it is answered by documents from the start of the lease rather than by what anyone remembers.

The renewal machinery

Where the tenancy is protected, either party can start the process.

The landlord serves a section 25 notice, specifying the date the tenancy is to end and stating whether the landlord opposes renewal — and if so, on which grounds.
Or the tenant serves a section 26 request for a new tenancy, proposing terms.

Both are subject to strict timing requirements and prescribed forms. A notice that is out of time or in the wrong form is ineffective, and the tactical consequences of that can be significant.

Timing is itself a tactical decision. Whoever moves first influences the timetable and the interim rent, and the market at the relevant date affects the rent for the new term. There are situations where a tenant benefits from moving early and situations where waiting is better — and it is worth taking advice before serving anything.

The grounds of opposition

A landlord can oppose renewal only on the statutory grounds, which include breaches by the tenant — disrepair, persistent delay in paying rent, other substantial breaches — the availability of suitable alternative accommodation, and, most commonly, the landlord’s intention to redevelop or to occupy the premises itself.

The redevelopment and own-occupation grounds are the ones most often relied on and most often contested. The landlord must prove a genuine, settled and realistic intention at the date of the hearing — evidenced by plans, permissions, funding and board decisions rather than asserted.

Where renewal is opposed successfully on certain grounds, the tenant is entitled to statutory compensation.

Terms of the new lease

Where renewal proceeds, the terms are agreed or determined by the court: the length of the new term, the rent, and the other terms — which generally follow the old lease unless there is good reason to change them.

The rent is the main battleground, determined on the statutory basis by reference to comparable open market lettings, and it is where expert evidence usually decides the outcome.
Interim rent — payable between the old term ending and the new lease starting — is a separate application and is frequently overlooked. In a rising or falling market it can be worth a great deal, and either party can apply.

What we do

Establish whether the tenancy is protected, which means examining what was done before the lease was granted. Advise on timing and tactics before any notice is served. Serve and respond to section 25 and section 26 notices correctly. Negotiate the terms of the new lease. Contest opposed renewals, including testing whether a redevelopment intention is genuine. And deal with interim rent.

What it costs

£400 per hour plus VAT with an estimate by stage. Surveyor and valuer fees are additional where expert evidence on rent is needed.

A protected-or-not review — establishing whether security of tenure was validly excluded — is a fixed fee, and for anyone approaching the end of a term it is where to start.

Questions

Questions people ask us

How do I know if my lease is contracted out?

By looking at what was done before it was granted — whether a warning notice was served and a declaration made, in the right form and at the right time. The lease will usually say it is contracted out, but saying so does not make it so if the procedure was not followed.

My landlord says I have to leave. Do I?

Only if the tenancy is not protected, or if they can establish a statutory ground. Redevelopment and own occupation are the usual grounds, and both require a genuine, settled and realistic intention proved with evidence.

They served a section 25 notice. What do I do?

Take advice immediately — there are time limits and the response affects your position. Check the notice itself as well: form, timing and service all matter, and defective notices are not uncommon.

Can I get compensation if I have to leave?

Where renewal is opposed successfully on certain grounds, statutory compensation is payable. Whether it applies depends on which ground succeeded and how long you have occupied.

What is interim rent?

Rent payable between the old term ending and the new lease beginning, determined separately on application. Either party can apply, and in a moving market it is worth real money — it is frequently forgotten.

Should I serve first or wait?

It depends on the market, the timetable you want and the interim rent position. It is a tactical decision worth taking advice on before acting rather than after.

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