The Landlord and Tenant Act, 1954 regulates the legal relationship between landlord and tenant. Part II of the Act regulates commercial tenancies. By general operation of law, a commercial tenant has the right to remain in the property after the expiry of a lease agreement. This is known as “security of tenure”.
In order for a landlord to retake possession at the end of a commercial lease agreement security of tenure must be explicitly excluded from the lease agreement.
A tenant will be waiving quite a substantial right in these circumstances and it is for this reason that the Act lays down clearly-defined steps which must be followed in concluding a commercial lease agreement to ensure that it is placed beyond doubt that security of tenure is excluded.
Why would a landlord want to exclude the right to security of tenure?
A landlord might want to exclude security of tenure for a variety of reasons. The main benefit to a landlord is that it gives them freedom to make commercial plans for their property without being bound to a long term (and some might say almost limitless) obligation to a tenant. The exclusion of security of tenure does not mean that a landlord is bound to retake possession at the end of a commercial lease. The parties will be free to conclude a further commercial lease agreement if they so choose.
Excluding security of tenure from a commercial lease agreement would assist a landlord their long term commercial plans for the property which could include redeveloping the property in circumstances where a sitting tenant might disrupt the construction works or might not fit with the new commercial vision. The selling price of a property may also be affected by a sitting tenant where, from the point of view of a prospective purchaser, it may be difficult to obtain possession or increase the rent.
How to lawfully exclude security of tenure
There is a three-step process set out in the Landlord and Tenant Act which a landlord must follow to the letter. A defect in this process could have the result of a tenant acquiring security of tenure.
Step 1 – Notice
This is a standard form notice which can be found at schedule 2 of The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. This notice sets out that:
- Commercial tenants usually have the right to security of tenure;
- The contemplated lease agreement excludes that right;
- A commercial tenant will not have the right to:
- Remain in the premises after the lease ends;
- Approach a court to determine the rent
- Claim compensation for loss of business premises unless the contemplated lease agreement specifically gives that right.
- A commercial tenant should take independent advice on the lease agreement before committing themselves.
It is recommended that landlords use the exact form and wording of the notice in the act to ensure that they are fully compliant with the law. This form must be served on the proposed tenant by the landlord. There will be a place on the notice for the commercial tenant to sign which will confirm that they are:
- aware of their rights in respect of security of tenure;
- explicitly waiving those rights;
- aware of the consequences of waiving their rights.
Step 2 – Tenant’s Declaration
Timing of the notice
The fact that a landlord will want to exclude security of tenure will no doubt arise during the course of negotiations over the lease agreement. However, the notice cannot be served until the lease is in its final form i.e. all the terms have been agreed and all that is required is for the parties to finally commit themselves by signing the agreement.
If the notice is served more than 14 days before the commercial lease is due to commence then all the tenant needs to do is sign the notice and return it to the landlord. This is known as a “tenant’s simple declaration”.
If the lease is due to commence less than 14 days from the date of service of the statutory notice then the tenant must sign the declaration before an independent solicitor. This is known as a “tenant’s statutory declaration”.
Step 3 – Reference to Exclusion in the Lease Agreement
The lease agreement must include a reference to the fact that the commercial tenant:
- has waived their right to security of tenure;
- has signed a formal declaration (simple or statutory) to this effect.
It is good practice for the landlord to file the signed declaration with the commercial lease agreement.
It is extremely important for landlords to ensure that their notices are compliant with the law. A failure to follow the correct procedure could result in a tenant acquiring security of tenure which could have dramatic and costly consequences for a landlord should they choose to exercise those rights.
This article is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter. If you require specific legal advice on any issue relating to a landlord/tenant relationship, we at Burlingtons Legal LLP will be able to assist. Please contact us on +44 (0)20 7529 5420 to arrange a consultation.