A lease is, first of all, a contract, conferring rights on landlord and tenant in exchange for obligations. However, statute does still intrude on the landlord and tenant relationship, most notably with the Landlord and Tenant Act 1954. Part II of this enactment is still of fundamental importance to anyone proposing to grant or accept a commercial lease, as provided certain conditions are satisfied, a landlord may find that he is giving up more than he expected – and a tenant that he is acquiring a more valuable interest in the property than he had first realised.
The Tenant’s Right to a New Lease
The main effect of the Act is that business tenants who remain in occupation of a property following the expiry of their lease will have a right to a new lease. The right also attaches to tenants who have been allowed into occupation by a landlord without a formal tenancy ever having been granted, who then establish a periodic tenancy by, among other things, paying rent at regular intervals. The right is not available in all cases though, and so tenants should check exactly when it is available, and take care not to do anything which could result in it being lost.
There are seven prescribed grounds under which a landlord can resist a tenant’s application for a new lease. Some of these relate to the conduct of the tenant; so that, if the tenant has allowed the property to fall into disrepair by breaching repair covenants, or has delayed in paying rent, the landlord will not be obliged to grant a new lease. And there are other grounds which relate to the intentions of the landlord, such as to redevelop the property, or to reoccupy the property himself. Under these grounds, the landlord is obliged to compensate the tenant for loss of premises.
Traps to Avoid
With the rights granted by the Act come rules concerning how they are exercised. For example, the right to renew requires that a tenant serve notice of its request for a new lease on the landlord between six and twelve months before the lease is due to end. Thereafter, the landlord must respond to the tenant’s notice by serving a counter notice, following which the tenant will have further deadlines with which to comply to ensure that the right to renew is not lost. Tenants should seek advice if they are unsure about when to serve notices, what they should say, or how they are served.
Another consequence of the Act is that tenants who do not want a new lease are still bound to follow its provisions. So, if a tenant wants his obligations to cease when the lease expires, as well as making sure that he physically vacates the property, he must ensure that he properly notifies the landlord of his intentions.
The Landlord’s Perspective
For landlords, the safest option is to contract out of the Act, and thereby remove from the tenant his automatic right to renew. To do this effectively requires from the landlord the same careful attention to statutory procedures as is demanded of the tenant in serving notices protecting his right to renew.
If contracting out is not possible, then a landlord should be familiar with the Act to ensure that he knows what needs to be done if he wants the tenant to leave when the lease ends. In particular, he should check that the tenant’s notices are properly served, know the rules about how and when to serve counter-notices, and ensure that if he is relying on one of the seven statutory grounds for opposing a renewal, he is in possession of all necessary evidence to support his position, whether this be of the tenant’s default or of the landlord’s future plans for the property.
The Act is far from a perfect instrument. The statutory rules are detailed and strictly enforced, and the trouble and costs which can be involved in court proceedings mean that a tenant is far better served, wherever possible, negotiating a new lease with the landlord without having to invoke the Act. That said though, when circumstances are such that no agreement can be reached, the tenant’s rights are invaluable, capable of turning a wasting asset into something capable of transmission to a successor tenant. It is therefore essential that tenants taking on new leases are aware of all of the tools at their disposal, including the Act, before undertaking the potentially onerous commitment a new lease can entail.