Security of tenure is a critical aspect of business tenancies, providing Tenants with stability and protection against eviction. The Landlord and Tenant Act 1954 (“the Act”) is the primary legislation governing business tenancies. However, there are various scenarios where the provisions of the Act does not apply, leading to different considerations for both Landlords and Tenants.
What is a business tenancy?
A business tenancy is one where the property is occupied for the purposes of a trade or business.
What is security of tenure?
Security of tenure is the right of a business tenant to a new lease when their existing lease comes to an end. In the context of business tenancies, not having security of tenure can significantly impact the financial stability and operational continuity of a business.
Tenancies not having security of tenure:
- Tenancies excluded by agreement through the “contracting out” procedure.
- Short Leases with a term of 6 months or less or where the total period of occupation does not exceed 12 months.
- Leases of residential premises or of agricultural land.
- Tenancies at Will or Licences.
Tenancies excluding security of tenure – “Contracting out”
The parties can agree to forego security of tenure. The Landlord must give the Tenant notice confirming the proposed lease will be excluded from the Act and the Tenant must confirm by completing a declaration. If notice is served less than 14 days before grant of the lease, the Tenant must provide a statutory declaration. The lease must include a statement to confirm the Act has been excluded.
Grounds of opposition to the grant of a new lease:
Where the Act is not excluded, the Landlord can only object to a lease renewal on specific statutory grounds. To do this, the Landlord must serve a notice on the Tenant objecting to a new tenancy and specify the statutory grounds on which it will be relying.
Implications of excluding the Act for Tenants
- Lack of renewal rights.
- Greater risk of eviction causing uncertainty.
- A need to negotiate more favourable terms upfront to ensure stability and mitigate risk (e.g. longer lease terms or fixed rental rates).
- Additional costs associated with relocating premises.
Implications of excluding the Act for Landlords
- Flexibility to terminate leases more easily which is advantageous if they wish to redevelop or repurpose properties or to secure higher rents from new Tenants.
- Potential vacancies and the associated marketing and refurbishment costs.
- Offering security of tenure may be attractive to prospective Tenants.
Conclusion
Both Landlords and Tenants must be aware of the implications of operating without the protections of the Act and should seek to negotiate clear and favourable terms within their lease agreements. Legal advice and thorough due diligence are vital to navigating these complexities, ensuring that both Landlords and Tenants can make informed decisions that align with their respective interests and long-term goals.