Guide to Tenants’ Rights Under Commercial Leases

By Carlin Peton

Tenants’ Rights Under Commercial Leases

For commercial Tenants, the Landlord and Tenant Act 1954 is a key piece of legislation. It gives business Tenants the right to “Security of Tenure” and regulates the way in which commercial leases can be extended or ended.

The 1954 Act recognises that if business Tenants must leave the premises when their Lease expires, they risk losing the goodwill they have built up during the term of the Lease and consequential financial loss. The 1954 Act addresses these issues by conferring Security of Tenure in respect of most business tenancies. Security of Tenure is the right of renewal for business tenancies at the end of the term, and the right to remain in the premises during the renewal process.

This guide is designed to provide a general overview whilst highlighting some of the key issues for commercial Tenants relating to their rights. For more detailed advice, and for advice on your available options, please contact our commercial property team.

When is a Business Tenant Protected?

  • The protection provisions of the 1954 Act apply to commercial tenancies where the property is occupied by the Tenant for business purposes.
  • “Business” is widely defined to include a trade or profession and “any activity carried on by a body of persons, whether corporate or unincorporated” (i.e. a company or other type of business structure or an individual).
  • The Tenant need not occupy the whole of the premises, nor does the tenant have to use the premises exclusively for business purposes, to be protected.

The protection only benefits business tenants which are not excluded tenancies.

How Does a Business Tenant Apply to Renew its Lease?

  • If you have Security of Tenure, you or your Solicitor can formally request a new lease at any time on or after the first day of the last year of the contractual term. There is a specific form of request which must be used, known as a “Section 26 Notice”. This request must state your desired terms, including the proposed term of the lease (number of years) and proposed new rent level.
  • If the Landlord does not want to renew the Lease, they can oppose a renewal by stating that they wish to do so, within two months of receipt of the Notice, on certain, very limited, grounds. These grounds include persistent delays by the Tenant in paying rent, failure by the Tenant to repair the premises, substantial breaches of other obligations or the Landlord offering alternative accommodation.
  • The most usual grounds for opposition are that the Landlord intends to demolish or rebuild the premises at the end of the tenancy and cannot do so without obtaining possession from the Tenant, or that they wish to use the premises for their own business purposes. The Tenant may receive compensation if either of these grounds are successfully used.
  • If the court rules in the Tenant’s favour, it will order the granting of a new tenancy and set the terms of the lease, unless the parties can agree their own terms.

How Does a Landlord Start the Renewal Process?

Landlords are also entitled to start the renewal process by serving a “Section 25 Notice”. This is the form of Notice which is used by a Landlord to end an existing commercial tenancy. It will either set out the Landlord’s desired terms for a Lease renewal or state that the Landlord opposes a renewal on the limited grounds available to the Landlord.

You cannot serve and rely upon a Section 26 request if your Landlord has already served a valid Section 25 Notice upon you.

It is vitally important that you seek legal advice as soon as you receive a Section 25 Notice, as there are deadlines set which must be observed, failing which you may lose your rights under the 1954 Act.

Excluded Tenancies

Some Leases may fall outside the protection of the Act for certain reasons, which are:

  • Where the Landlord and Tenant followed the correct procedure to opt out of the protection provisions of the Act.
  • Where the tenancy is of a fixed term of less than six months (unless there are renewal or extension provisions and the Tenant has already occupied the premises for more than six months).
  • The tenancy is a Tenancy at Will, under which a Tenant occupies the property with the Landlord’s consent upon the basis that either party can terminate by immediate Notice to the other.

If you would like more detailed guidance on extending or renewing your Lease, negotiating with your Landlord or if you have received a Section 25 Notice, please contact a member of our commercial property team on 020 3058 3363 or e-mail our enquiries page.