So what is security of tenure? It concerns business tenancies and is essentially a statutory right which allows tenants to apply for a new tenancy on similar terms as the existing tenancy when it expires. Part 2 of the Landlord and Tenant Act 1954 (the “Act”) governs the way in which business tenancies come to an end and which gives business tenants security of tenure. This Act applies to business tenancies only and must not be confused with residential tenancies. The business must be carried on by the tenant and the tenant must occupy the premises for it to qualify.
So why it is important that both landlords and tenants know about Security of Tenure? Landlords may not know about this statutory right and unintentionally grant a tenancy to the tenant with security of tenure. It is possible to contract out of the Act but there are strict procedures that must be followed and if done incorrectly, might mean that the tenant is given security of tenure at the end of the contractual term and a right to a new lease. If the landlord is unaware, he or she may grant a tenancy to a tenant longer than the landlord had intended. Tenants may also be unaware of their rights to a new lease and may be forced out by a landlord at the end of the contractual term. The tenant may have built up goodwill and which may be lost as a consequence of being asked vacate. The tenant may be entitled to compensation in some circumstances.
A business tenancy that is granted under the Act is “protected” i.e. it can only be terminated in one of the ways that is set out in the Act. The most common way is if the tenant vacates before the end of the contractual term (and hence there is no existing business tenancy that can continue under the Act). This must be distinguished however from where the tenant vacates after the end of the contractual term. So for example, where a contractual term ended on 1 March and the tenant vacated after this date, this would not automatically bring the business tenancy to an end and notice must be served.
Another common method to terminate the tenancy would be for the tenant to serve notice on the Landlord. If the tenant wanted the business tenancy to end on the expiry of the contractual term then the tenant must serve notice in writing not later than 3 months before the date on which the business tenancy would come to an end. If after the end of the term, then the tenant can serve notice on the landlord at any date not giving less than 3 months’ notice. The tenant is not permitted to request a new tenancy after notice is served in this way. Instead of terminating the business tenancy, the tenant might like to request a new tenancy, specifying the date on which the new tenancy is to commence. It can’t be done however more than 12 months nor less than 6 months after the date of the request and it can’t be earlier than the date on which the current tenancy will end by effluxion of time. If the tenant serves the wrong date the notice will be invalid.
It is possible for the Landlord to initiate a request for a new tenancy. It is also possible for the Landlord to apply to terminate the business tenancy or oppose the tenants request for a new tenancy. There are however a limited number of grounds in which the landlord can oppose the tenant’s application for a new business tenancy. Common grounds that a landlord usually relies on include, for example, where the landlord intends to demolish or reconstruct the premises and he cannot do so without obtaining possession of the premise (known as ground F) or where the landlord intends to occupy the premises for his own business purpose or as his residence (known as ground G). The landlords hurdle is being able to show intention to carry out the works in the case of ground F and it is not sufficient for the landlord to declare that he intends to do the works and it would allow him to change his mind at a later date. In respect of ground G, there must be a firm and settled intention to occupy and a reasonable prospect of being able to do implement this. If the landlord succeeds on these two grounds then the tenant will be entitled to compensation. Other less common grounds include where the tenant has failed to repair the premises, where the tenant has failed persistently to pay rent on time and where there are substantial breaches of other obligations contained in the lease. These less common ground however are discretionary grounds and the court has a discretion as to whether or not to refuse the grant of a new tenancy.
As demonstrated, the law governing business tenancies is very complex. Depending on the current economic climate, there may be tactical advantages for the tenant or landlord serving notice on the other party earlier or later. As mentioned earlier, there is also a complex procedure that must be followed if it is not the intention to grant the tenant security of tenure. There have been recent proposals to the Law Commission recommending that this process is streamlined as tenancy renewals are putting a considerable amount of strain on the court system. Our commercial property solicitors advise both Landlords and Tenants in respect of the leasing process. If you are thinking of entering into a lease, seek specialist legal advice before entering into a lease.