Landlord and Tenant Act 1954 Part 2: security of tenure for business tenants explained

Who is protected by the Act?

Part 2 applies to a tenancy of premises occupied for the purposes of a business (section 23(1)). “Business” includes a trade, profession or employment (section 23(2)). Occupation or business carried on by a company in which the tenant has a controlling interest counts as the tenant’s own, and so does occupation by a person with a controlling interest in a company that is the tenant (section 23(1A)(a) and (b)). Part 2 covers only the part of the premises occupied by the tenant or by a person it employs (section 23(3)).

What happens when the lease ends?

A protected tenancy does not end at its contractual end date. Under section 24(1), it continues until it is ended in accordance with Part 2. Section 24(2) excludes some endings, such as a notice to quit given by the tenant, a surrender, or a forfeiture. The usual ways the tenancy is brought to an end under Part 2 are a landlord’s notice under section 25 or a tenant’s request under section 26.

Either side must apply to the court within the statutory period. Under section 29A, the court cannot entertain an application made after that period ends, and the period ends on the date specified in a landlord’s section 25 notice (section 29A(2)(a)) or immediately before the date specified in a tenant’s section 26 request (section 29A(2)(b)). Missing it means losing the right to apply for a new tenancy. Section 29B allows the parties to agree a later date. This is the single most important deadline in the process, so take advice as soon as a notice arrives.

Either side can also ask the court to set an interim rent while the tenancy continues (section 24A). If a court application is made, the tenancy does not end until three months after the application is finally disposed of (section 64).

Can a tenant give up these rights?

Check first whether your lease is contracted out. If it is, sections 24 to 28 do not apply to it, which removes the Part 2 renewal rights.

Contracting out is agreed before the lease is granted, not chosen later. Under section 38A, the landlord and tenant of a tenancy for a term of years certain can agree that sections 24 to 28 do not apply. The agreement is void unless two things happen (section 38A(3)). First, the landlord must have served a notice on the tenant in the form, or substantially the form, in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (SI 2003/3096). Second, the requirements in Schedule 2 to that Order must be met.

Schedule 2 requires, in outline, that the notice is given at least 14 days before the tenant enters into the tenancy (or becomes contractually bound to do so, if earlier). The tenant, or a person the tenant authorises, must then make a simple declaration before that time. If the notice was given less than 14 days before, the tenant must instead make a statutory declaration before entering the tenancy. The notice and the declaration must be contained in or endorsed on the document that creates the tenancy.

If you are asked to contract out, get advice on what you are giving up before you sign.

Who pays the legal costs of a new lease?

Under section 1 of the Costs of Leases Act 1958, a party to a lease is under no obligation to pay the other party’s solicitor’s costs of the lease, unless the parties agree otherwise in writing. So the usual starting point is that each side pays its own solicitor, but a written agreement can change that. Check the heads of terms and any draft lease before you agree to pay the landlord’s costs.

Do the rules apply to short leases?

Part 2 does not apply to a tenancy granted for a term certain not exceeding six months, unless the tenancy contains provision for renewing the term or for extending it beyond six months from its beginning, or the tenant has been in occupation for more than twelve months (counting any predecessor in the business) (section 43(3)). So a letting for a term certain of six months or less usually falls outside Part 2, unless one of those exceptions applies.

On what grounds can a landlord oppose a new lease?

A landlord who wants to end the tenancy and refuse a new one must rely on one or more of the grounds in section 30(1). The landlord has to state its grounds in its section 25 notice (section 25(7)). The grounds are:

The grounds in section 30 are strict. A landlord that wants to redevelop, or to take the premises for itself, must show it meets the ground it relies on. Any such notice should be checked for compliance.

What compensation can a tenant claim?

The tenant can recover compensation from the landlord on quitting the holding in three cases (section 37(1)). The first is where the court is precluded from granting a new tenancy on the tenant’s application, and the only grounds that apply are (e), (f) and (g) (section 37(1A)). The second is the same position on a landlord’s application to terminate under section 29(2) (section 37(1B)). The third is where the landlord’s notice states opposition on those grounds only, and no application is made or it is withdrawn (section 37(1C)). The amount is a multiplier set by statutory order, applied to the rateable value of the holding (section 37(2)). The multiplier for most cases since 1 April 1990 has been one (Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990, article 4). The compensation is doubled where the premises have been occupied for the purposes of a business for the fourteen years before the tenancy ends (section 37(2) and (3)).

Compensation is a point to check in every opposed renewal. If you are facing one, get advice on the rateable value, the multiplier that applies, and whether the doubling conditions are met. An independent solicitor you instruct can advise on your own tenancy and the notice you have received.