Commercial Lease — Key Issues for Landlords and Tenants
Frequently Asked Questions
What is security of tenure under the Landlord and Tenant Act 1954 and how do I protect it?
Security of tenure under the LTA 1954 means that a business tenant whose lease comes to an end at the contractual expiry date does not have to leave the premises — the tenancy continues on the same terms until it is brought to an end by the correct statutory procedure. The landlord can only oppose renewal on one of the grounds specified in s.30(1) of the Act — the most common being that the landlord intends to occupy the premises for their own business (ground (g)). A solicitor advises tenants on the steps needed to protect their renewal rights — including making a court application before the deadline set by the s.25 notice or s.26 request.
The landlord has served a section 25 notice opposing renewal — what are my options?
A tenant has the right to apply to the court for a new tenancy, regardless of whether the landlord opposes renewal. Where the landlord opposes renewal on one of the statutory grounds (s.30(1) LTA 1954), the court determines whether the ground is made out. If the ground is not made out, the court orders the grant of a new tenancy on terms it considers reasonable. If ground (f) (redevelopment) or ground (g) (own occupation) is made out, the tenant is entitled to statutory compensation — the current rate is twice the rateable value of the holding where the tenant has been in occupation for 14 years or more. A solicitor advises on the strength of the landlord's ground of opposition and manages the court application for a new tenancy.
The landlord is claiming a large sum for dilapidations — are there any limits on the claim?
Yes. The most important limitation is s.18(1) of the Landlord and Tenant Act 1927 — damages for breach of the repairing covenant are capped at the diminution in the value of the landlord's reversion caused by the breach. This is often significantly less than the cost of works. A solicitor instructs a specialist building surveyor to review the schedule of dilapidations, challenges the scope, the standard of works alleged, and the cost claimed, and obtains a valuation of the reversion to establish the s.18 cap. Dilapidations claims are frequently significantly reduced through negotiation on this basis.
Can I break my lease early if the business is not performing?
Only if the lease contains a break clause — a provision allowing the tenant (and/or landlord) to terminate the lease early on giving specified notice. Break clauses are typically conditional — conditions must be strictly complied with (for example, rent paid up to date, no subsisting breaches of covenant, vacant possession given). The courts interpret break clause conditions strictly — even a minor technical failure to comply with the conditions can invalidate the break. A solicitor advises on the conditions of any break clause, manages the break notice process, and advises on the consequences of a failed break. If no break clause exists, the tenant is bound by the lease term — negotiating a surrender with the landlord may be possible.
What is "contracted out" of the Landlord and Tenant Act 1954 and does it affect me?
A lease can be "contracted out" of the security of tenure provisions of the LTA 1954, meaning the tenant has no statutory right to renew the lease at the end of the term. Contracting out requires a warning notice from the landlord and a statutory declaration by the tenant (confirming they understand the consequences) before the lease is completed. Many shorter commercial leases and licences to occupy are contracted out. A solicitor advises on whether the lease is contracted out and, for landlords, manages the contracting-out procedure correctly to ensure the exclusion is effective.