The Landlord and Tenant Act 1954 (LTA 1954) governs the rights and obligations of landlords and tenants of premises occupied for business purposes. As a complex piece of legislation that has potentially wide-reaching consequences for landlords and tenants, we look at some of the most common issues that can arise.
The Landlord and Tenant Act 1954 (The Act) primarily provides business tenants with the right to renew their lease on the expiry of the contractual term. This is commonly referred to as security of tenure– meaning they can effectively legally remain in the property subject to certain mandatory grounds for possession under the Act.
Where the Act applies such that the Tenant has the security of tenure (automatic right to a new lease) – or where the Landlord requires possession based on one of the mandatory grounds for possession, the process is triggered by service of a requisite notice (Section 25 for Landlord and Section 26 for the Tenant). The parties can either agree on what the new terms will be. The starting point from which a court would work would be the same terms, subject to a review of open market rent. It is normal for the Landlord not to oppose a new Lease for the parties to agree to terms amicable. Still, sometimes this isn’t possible, and Court proceedings to determine the final terms can, on rare occasions, become necessary.
There are a number of grounds on which a landlord can oppose a new lease under the LTA 1954. Some are mandatory, which, if proven, will lead to processioning obtained; others are not mandatory and are only considered potential grounds for possession under the Act. Mandatory grounds include a landlord’s intention to redevelop a landlord’s intention to occupy, whereas potential grounds include disrepair, rent arrears, or other covenant breaches.
Where the landlord wishes to regain possession and an agreement cannot be reached with the tenant, one of the above grounds would first need to be proven. The time for proving the mandatory ground is at a Court Hearing, which means that the Tenant is left with a gamble as to whether the landlord’s intentions are honourable or being misrepresented. A Landlord wishing to rely on a mandatory ground is required to serve a section 25 notice giving the tenant not less than six months’ notice to terminate the current lease. In the event that the tenant does not accept that the landlord has a valid ground of opposition, court proceedings would need to be issued by the Tenant on or before the termination date stated within the notice. If that is missed, then the Tenant is forced to vacate the premises, and the Lease comes to an end.
It is often discussed how the LTA 1954 can lead to landlords struggling to obtain vacant possession of commercial properties and that the process to extract tenants can cause delay, uncertainty and costs, which can impact any potential development programme or property sale plans. However, how the mandatory grounds for possession can impact the tenant is often overlooked.
If a tenant has met their obligations under their lease, it is entirely proper that they should expect to stay in the property for as long as they require so long as the Act applies and security of tenure applies to their lease (subject to a mandatory ground being pursued by the Landlord). They may have invested heavily in altering the property to meet their needs and may have built their operations, goodwill, customer base and workforce based on that specific location. When they are suddenly faced with notice to oppose a new lease, this can lead to an extended period of uncertainty on their part, during which they may not feel able to invest in the business as they had planned.
Any unforeseen barriers such as this could be hugely damaging for business, especially as the tenant will only discover the outcome following a court hearing if the Landlord is unwilling to settle either the terms of a new Lease or is reliant on a mandatory ground for possession.
If a landlord wants to avoid the risk of security of tenure under the LTA 1954, they may seek to find a tenant that will occupy the premises under a licence, a tenancy at will, or a contracted-out lease. A contracted-out lease disapplies (by service of notice and reciprocal declarations by the Tenant pre-lease commencement) the applicability of the Act such that on termination, the tenant is forced to leave. They have no security of tenure. The former types of occupancy License or Tenancy at Will) afford no security of tenure at all (save for any legal arguments as to the construction of the documents leading to a protected tenancy, which falls outside this article’s scope).
The Landlord and Tenant Act 1954 is highly technical, and both parties should seek specialist advice to assess the full implications. The Commercial Property team at O’Donnell Solicitors is highly experienced in advising both landlords and tenants in relation to the LTA 1954 at the Lease grant or at the end of the Lease, including where the Landlord and Tenant are unable to agree on terms which lead to Court Proceeds. Our specialist team is also highly experienced in advising on wider aspects of owning or renting commercial property, including to a large portfolio of investor Landlords and Tenants.
To access our Commercial Property services, please contact James O’Donnell at our head office at Appleby’s Business Centre, 1-3 Mossley Road, Saddleworth, Grasscroft on 01457 761 320 or email email@example.com