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Legal Update: What the Landlord & Tenant Act means for lease renewals

What Commercial Landlords and Tenants should know about Lease Renewals under the Landlord and Tenant Act 1954

If you’re a landlord or a tenant of commercial premises you should be aware of the protections and procedures set out in this key Act of Parliament.  Most commercial leases of premises used for business purposes are governed by this Act. 

For Landlords

For Landlords, the 1954 Act applies when the contractual term of the lease (e.g. a 5-year term) is about to end/has ended, and the tenant is still occupying.  If the tenant wants to enter into a new lease, and the landlord agrees, and the parties have managed to agree on terms for a new lease, then it may not be necessary to use the formal procedures under the Act.  However, where the tenant is still in occupation but hasn’t indicated or decided whether they are staying, or where it looks unlikely that the landlord and tenant will agree on the new terms, or otherwise where there is no relationship of trust, it is advisable to use the formal procedures under the 1954 Act.

This involves the Landlord serving a notice under the Act (called a Section 25 Notice), either setting out that renewal is not opposed and proposing terms for the new tenancy OR setting out that renewal is opposed and giving reasons for opposing.  Renewal can only be opposed on a limited set of statutory grounds.  You should always seek advice if you are considering refusing a renewal (the grounds for refusal will be covered in a separate blog).  A section 25 notice has set time limits on when it can be served, and by which the tenant must respond to it.  Landlords must also make sure to serve it correctly to ensure it is valid.  Again, I recommend you seek advice.  Solicitors prepare and serve Section 25 notices for landlords, and then monitor the date for expiry and any response.  If the notice expires without the tenant taking certain necessary steps, that will terminate the lease in most cases.

Usually, the notice procedure results in negotiations and agreement between the landlord or his surveyor, and the tenant.  Usually, the main area of dispute is the level of rent, for which expert valuation evidence from surveyors will be needed, but other terms may need to be negotiated, such as length of the term, responsibility for repairs, and any break clauses.  However, if the new lease cannot be agreed within the legal timescales, a landlord may apply to the court to have it determine the terms of the new lease.  Again, it is best to get advice throughout the process.

For Tenants

The 1954 Act can be a friend to the tenant. It gives them a good degree of protection, entitling them to a new lease unless the landlord can legitimately rely on one of the grounds for refusing, which are relatively limited.  It means that when the contractual term of the lease ends they are entitled to continue in the occupation on the same terms until the landlord has followed the procedures under the Act to either agree or refuse a new lease.  A section 25 notice will give a minimum of six months’ notice, so they have plenty of time in which to consider their options.  Alternatively, if their landlord has not been pro-active and served a notice on them, and they don’t want to just hold over under their existing lease, they can serve a Section 26 notice on their landlord, requesting a new lease and setting out proposed terms.  A tenant may wish to do this where, for example, they think market rents have gone down from the current level, and they want to negotiate a lower rent in the new lease.   The Act also allows tenants to serve a Section 27 notice terminating the lease, or they can simply cease to occupy the premises for business purposes by the end of the contractual term.

However, the Act can be the tenant’s enemy if they are not careful to respond appropriately when the landlord serves a Section 25 notice.  For example, once a landlord has served a Section 25 notice on them if they ignore it or don’t manage to get a new lease completed or an extension of time agreed before the notice expires, the lease will terminate and they will lose their protection (i.e. their entitlement to a new lease) under the Act.   Tenants should always take the receipt of a Section 25 notice seriously and seek advice if they receive one.

For pub tenants

Where the property in question is a pub that is tied and subject to the Pubs Code, the Landlord and Tenant Act 1954 will still apply to the renewal procedures (unless the lease validly excluded the Act).  However, there are some differences, for example where there are lease renewal court proceedings, the claim has to state that the tied pub tenant is a Pubs Code tenant and say whether or not the tenant has given an MRO notice (Market Rent Only notice), and whether there has been a request for a rent proposal.  If there are is an MRO procedure under way, the court will typically stay the lease renewal claim until the outcome of the MRO procedure and the court must be informed about an MRO outcome within 28 days.

Where an MRO notice has been served, neither landlord or tenant are obliged to disclose in their statement of claim or acknowledgment what their preferred tied lease terms are. The MRO procedure and lease renewal procedure are separate processes. If the tenant wants to go free of tie, it cannot use the lease renewal procedures to obtain this, it must go through the procedure in the Pubs Code.