Understanding your rights as a commercial landlord or tenant is essential when entering into a lease. In this article, Kira explains what security of tenure is and why knowing your position is imperative. 

What is Security of Tenure?

Security of Tenure means that a business tenant has an automatic right to remain in possession of business premises despite the end of the lease term. The tenant will have a right to apply to the court for a new business tenancy on substantially the same terms even if this is not agreed by the Landlord, but in practice most Landlords are happy to renew by negotiation in any event.

Security of Tenure is automatic unless the lease is expressly contracted out of the Landlord and Tenant Act 1954, which requires the Tenant to sign a declaration at the start of the lease setting out their understanding and approval to excluding this very important right.

When a tenant has security of tenure, a landlord will only be able to object the renewal of the lease on very specific grounds, such as redevelopment or if the landlord intends to occupy the property themselves. However, these grounds are narrow and strictly interpreted by the court which means that landlords (and tenants) can very easily fall foul of the different rules and notices which need to be served and to avail of the court process if there is a dispute and the parties cannot agree terms. If a landlord successfully objects to the tenant’s notice to renew the lease, some of the “no fault” grounds will require the landlord to pay compensation to the tenant based on the rateable value of the property.

If the lease is contracted out of the 1954 Act and therefore does not benefit from the right of renewal, a “contracting out” notice will need to be served on the tenant at the time the lease is agreed and completed. The tenant will then need to have a declaration sworn to confirm that they will not benefit from security of tenure under the lease. The lease will then come to an end on the expiry date and the tenant will have no legal rights or entitlement to remain in occupation of the property.

Security of Tenure is a complex area of law and relevant to all commercial leases. The landlord must weigh up the pros and cons of protecting their investment property when considering whether or not to provide a tenant with security of tenure. In some cases, it is obvious where security of tenure should not be afforded but in others, it requires detailed consideration of the landlord’s requirements and circumstances, including any future plans for the property.

Advice should be sought to ensure that both landlords and tenants are clear on their rights and the binding terms of the lease both at the outset of the lease and again on expiry. Most of these rules and provision are not set out expressly in the lease so it is very important that expert advice is taken.

For further advice please contact Kira Luka-Langley on kira.luka-langley@maxengel.co.uk or 01604 887455.