Is Security of Tenure a ‘must-have’ for Commercial Leases?

Skipton High Street with businesses

What is Security of Tenure?

Security of Tenure for commercial properties derives from the Landlord and Tenant Act 1954. It applies to leases that are wholly or partly for the purposes of the tenant’s business.

If the tenant and landlord cannot agree a new lease at the end of the term, Security of Tenure grants tenants an automatic right to renew their lease. The tenant is not obliged to exercise this right but it’s an option tenants have to prevent them from being evicted. If both parties fail to agree on terms, the court can set what they consider to be reasonable terms.

If you’re a new business and have a 3-year lease, you might want to leave it quite late to decide whether the business in that location is viable. Security of Tenure allows the tenant some flexibility; they know that the law allows them to extend the lease should they wish, except in limited defined circumstances.

Does Security of Tenure secure a tenant’s rights to stay completely?

A landlord might not want to keep a tenant in their property. But under Security of Tenure, the tenant can only be removed under specific grounds:

  • the tenant fails to repair and maintain the property;
  • persistent delays in the tenant paying rent;
  • substantial breaches of other lease terms;
  • the landlord has offered suitable alternative accommodation (which does not interfere with the tenant’s goodwill);
  • the lease was a sub-lease of only part of a property and the landlord can get a higher rent by renting the property as a whole;
  • the landlord intends to carry out substantial renovation works; or
  • the landlord intends to occupy the property themselves.

Even if one of these grounds applies, a landlord may need to pay compensation to a tenant.

Security of Tenure offers a great advantage to tenants

Provided none of the above grounds arise, tenants have the reassurance that when their lease runs out, they have control over whether to extend their lease. Even if a tenant has a bad relationship with their landlord, Security of Tenure will prevent the landlord from removing them.

However, tenants should bear in mind that if they cannot agree the terms of their new lease with the landlord, the court can decide on terms and the tenant may end up with a less suitable lease. Maintaining a good relationship with the landlord is preferable.

Can you avoid Security of Tenure?

It is possible to exclude Security of Tenure through a process known as ‘contracting out’. The landlord will need to serve a notice to the tenant that explains the rights a tenant is giving up.

Once served with this notice, the tenant will then need to make a declaration to confirm that they are excluding this right. Usually this is made in front of an independent solicitor who has not been instructed by either party; a small charge of £5 is made for this service. Details of the declaration must be included in the new lease.

What do Landlords and Tenants think of Security of Tenure?

Landlords will probably want to avoid Security of Tenure so that they can keep control of the lease. Tenants, if fully conversant with what Security of Tenure means should try and keep it in the contract. A tenant could contract out as a bargaining tool when negotiating a lease; contracting out should give them benefits in other areas of the lease.

Here at AWB Charlesworth, we can help you to understand whether Security of Tenure is suitable for your lease, and the risks you should be aware of. Should you wish to contract out, we can ensure that the lease effectively excludes Security of Tenure and guides parties through the process.

Read more:

Ready, steady, SELL! Getting ready for a quick sale of your commercial property

Ready, Steady, Sell! – AWB Charlesworth Solicitors (awbclaw.co.uk)

Sorry to mention this… but when you die, is your business prepared?

Sorry to mention this… but when you die, is your business prepared? – AWB Charlesworth Solicitors (awbclaw.co.uk)

Landlord and Tenant Act 1954

Landlord and Tenant Act 1954 (legislation.gov.uk)

 

For more information, please contact Thomas Connell on 01756 692876 or email thomas.connell@awbclaw.co.uk

29 June 2023

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