Solicitor Lauren Johnson, in our Dispute Resolution team, explains ‘contracting out’ the security of tenure provisions from a commercial lease.
What is security of tenure?
Under the Landlord and Tenant Act 1954, sections 24 – 28, where a tenant occupies a property for the purpose of its business, the tenant will have protection known as security of tenure.
This means the lease will continue for as long as the tenant remains in occupation, even if the contractual lease term has ended. The lease can only be ended in accordance with provisions in the LTA 1954.
Security of tenure also give the tenant a statutory right to renew their lease at the end of the contractual term.
The landlord can only oppose the renewal of a new lease using certain grounds set out in the LTA 1954, which are:
- Premises are in disrepair, Ground (a)
- Arrears of, Ground (b)
- Other breaches of covenant, Ground (c)
- Suitable alternative accommodation, Ground (d)
- Tenancy was created by a sub-letting, Ground (e)
- Landlord's intention to redevelop, Ground (f)
- Landlord's intention to occupy, Ground (g)
The landlord can use more than one ground for opposition. The landlord must be able to provide evidence of the ground they are relying on.
Ground (a), Ground (b), Ground (c) and Ground (e) are discretionary grounds and Ground (d), Ground (f) and Ground (g) are mandatory grounds. This means the Courts have some discretion to grant a new lease, even if the ground of opposition is evidenced by the landlord.
Statutory compensation
A tenant is entitled to compensation if they do not obtain a new lease solely because the landlord establishes one of the "no fault" grounds of opposition. The no fault grounds are:
- Ground (e)
- Ground (f)
- Ground (g)
These grounds entitle a tenant with security of tenure under the LTA 1954 to statutory compensation if the tenant does not obtain a new lease solely because the landlord establishes one of the no fault grounds of opposition.
If a landlord successfully opposes a lease renewal on a fault ground, which are Ground (a), Ground (b), Ground (c) or Ground (d), the tenant will not be entitled to statutory compensation.
Contracting out security of tenure
It is possible for the landlord and tenant to agree to remove sections 24 – 28 of the LTA 1954. This is known as ‘contracting out’ the security of tenure provisions from the lease.
A lease that has contracted out the security of tenure provisions of the LTA 1954 will automatically come to an end on the contractual term expiry date. The landlord is not required to give notice. If the tenant wishes to renew a contacted-out lease, this will be a matter of negotiation between the landlord and tenant.
Procedure for contracting out
A lease can only be validly contracted out if the contractual term is for certain term of years. This means the contract term will be either:
- Granted for a fixed term, or
- Granted for a fixed term with a break clause
An agreement to contract out the security of tenure provisions form a lease will only be valid if done by one of the procedures set out in the LTA 1954. The contracting out procedure must be completed before a party enters into the lease.
Our Dispute Resolution team can advise on property related disputes.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
