It is vitally important for both landlords and tenants to be aware of their respective security of their tenure position(s). This is especially important when negotiating the terms of a new business lease, or when an existing business lease is being assigned to a new incoming tenant.

‘Security of tenure’ is derived from the Landlord and Tenant Act 1954 (“the 1954 Act”) and affords business tenants with the right to renew their business lease on the same terms as their previous lease (once it has expired), provided that the landlord cannot satisfy any of the legal grounds for refusal. These provisions only apply to commercial and business tenancies created in England and Wales.

When entering into a new business lease, each party will agree whether or not the tenancy created by the lease will be ‘protected by’ or ‘excluded from/contracted out of’ the security of tenure provisions contained within the 1954 Act.

If a commercial lease is ‘protected by’ the 1954 Act, it means that the security of tenure provisions apply and the business tenant can renew their lease on the same terms, once their original lease expires.

An ‘excluded from/contracted out’ commercial lease means that the 1954 Act doesn’t apply and the tenant will have to vacate at the end of the term. As a tenant, you’ll know whether the lease you are about to enter into is ‘excluded from/contracted out of’ of the 1954 Act because your intended landlord will serve you with a Section 24 notice (sometimes referred to as a Statutory Declaration) to sign/ have declared by an independent commissioner for oaths.1

The notice will usually follow a standard form and will commit the tenant to sign that they have understood their lease isn’t protected by the security of tenure provisions and that they must vacate the property at the end of their term, unless the landlord offers them a new lease. A clause will be included in the lease to reflect this.

The importance of security of tenure for tenants

As a tenant of a commercial property, the security of tenure provisions are important for providing peace of mind, in the sense that they are able to expand and grow their business without worrying about a new base of operations once their lease expires. This can be particularly important for customer facing businesses who have established themselves with a market presence in a certain area.

If the commercial tenancy is protected, it will not automatically expire at the end of the original term and the tenant may decide to remain in occupation and ‘hold over’ (stay in occupation and continue to enjoy the same lease terms as previously) or make a Section 26 request to the landlord for a new lease.  Provided that the landlord isn’t able to satisfy any of the statutory grounds for refusal of a new lease, the tenant has a right to a new lease. The terms of the lease will be negotiated and agreed between the parties. If an agreement has not been reached, the tenant may apply to the Court for it to determine the terms.

The importance of security of tenure for landlords

Landlords often ask us to draft leases which are excluded from/contracted out of the security of tenure provisions in the 1954 Act. The reason for this is so that they are able to maintain more control over their property and can ask the tenant to leave once the lease expires, without having to provide an explanation or reason.

This gives landlords the benefit and flexibility of deciding what to do with their property at the expiration of the lease meaning that they are able to sell their property with vacant possession or lease it to a new tenant on more favourable terms.

We have an experienced Commercial Property team here at SHL who have experience in acting for both commercial landlords and tenants. If you’re in need of advice relating to any new lease you are being offered or would like us to act for you in relation to drafting a new lease/ negotiating lease terms, either as landlord or tenant,  please contact us on 01744 45 44 33.

[1] A Commissioner for Oaths is a person who is authorised to verify affidavits, statutory declarations and other legal documents. A Commissioner for Oaths can include: Solicitor, Barrister, Notary Public, Legal Executive or Licensed Conveyancer.