Considering security of tenure is of prime importance when it comes to business tenancies, where a property is occupied under a lease for the purpose of a trade or business. Where it applies, a tenant is afforded stability and protection against eviction as a Landlord can only object to a lease renewal on specific grounds statutory grounds. The Landlord and Tenant Act 1954 (“the Act”) governs such arrangements.
Some tenancies automatically exclude security of tenure, such as some short leases, leases of residential premises and agricultural land or tenancies at will. It can also be excluded by agreement through the “contracting out” procedure.
The “contracting out” procedure requires the Landlord to 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 less than 14 days before grant of the lease, the tenant must provide a statutory declaration, sworn in front of a lawyer independent from the transaction. The lease must also include a statement to confirm the Act has been excluded.
Where the Act is excluded, there will implications for both parties. For tenants, they will not have the benefit of renewal rights and the greater risk of eviction may cause uncertainty and additional costs for relocation are later required. There is a need for such tenants to negotiate more favourable terms upfront to mitigate this (e.g. longer terms, options to renew or fixed rents).
For landlords, the ease of terminating leases creates flexibility to allow for redevelopment of properties or the possibility to obtain increased rent from new tenants. This must be balanced with the potential for properties to lie vacant, attracting more costs with additional marketing and maintenance. In offering security of tenure, a property may be more attractive to prospective tenants.
Both landlords and tenants should be aware of the implications of security of tenure and should seek to negotiate clear terms which accord with their intentions for the property within their lease. Legal advice is key to navigating these complexities, ensuring any arrangements align with their respective commercial interests.