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Whether you are a landlord or a tenant with a commercial lease, many rules affect your lease. Your commercial lease agreement will detail these and some regulations you will find the details for in law. The Landlord and Tenant Act 1954 is one key piece of UK legislation that may apply to your commercial lease. This article will explain how the 1954 Act affects commercial leases in the UK.
What is the Security of Tenure?
Security of tenure means that the commercial tenant typically enjoys the legal right for automatic lease renewal once the lease reaches the lease end term date. It will continue on the same lease terms unless the commercial landlord and tenant agree to a new lease with different terms. The commercial lease is, therefore, a protected lease.
The main significant effect that the Landlord and Tenant Act 1954 has on a commercial lease is that it means it usually has security of tenure. Below, we look at some aspects of how the Landlord and Tenant Act 1954 affects a commercial lease in terms of security of tenure.
1. Refusal to Renew Lease
There are legal grounds with which a commercial landlord can refuse lease renewal. These include where:
- a tenant continuously fails to keep the property in good state of repair;
- a tenant is repetitively late with rent payments;
- the tenant has substantially breached the terms of the lease agreement;
- where the landlord offers the tenant alternative business premises with reasonable terms;
- where the premises will be demolished, reconstructed, or is for sale; and
- where the landlord wishes to occupy the property for their own business purposes.
2. Procedure for Lease Renewal
The procedure for lease renewal in a commercial lease with the security of tenure is in the Landlord and Tenant Act 1954. This details the use of Section 25 notice by the commercial landlord for lease renewal and renewal refusal. It also describes the use of a Section 26 notice by the tenant for lease renewal. Whichever party uses their notice first means the other cannot use theirs. A tenant may also use a Section 27 notice as the Act details they use this to give three months’ notice where they wish the lease to terminate.
3. Which Leases Security of Tenure Does Not Apply To
The Landlord and Tenant Act 1954 also affects commercial leases in terms of detailing which types of leases the security of tenure provisions in the Act do not apply to. These include commercial leases, which are:
- contracted-out leases;
- agricultural tenancies;
- commercial leases where the tenant does not occupy the property for more than 12 months; and
- commercial leases that last six months or less where there is no extension provision.
There are also other types of commercial property contracts, not in the form of a commercial lease, to which the security of tenure provisions do not apply. These include a:
- licence; and
- tenancy at will.
Contracted-Out Leases & Security of Tenure Non-Applicability
The Landlord and Tenant Act 1954 also affects commercial leases in terms of allowing a lease that would potentially be affected by security of tenure provisions to contract out of them. Therefore, the security of tenure provisions does not apply to the commercial lease, meaning there is no automatic lease renewal. Instead, the lease will terminate at the lease term end date unless both parties agree to a new lease.
A commercial landlord and tenant agree before they enter the lease if the security of tenure provisions will not apply. This is a non-protected lease. The Act details the legal rules which apply to this in section 38A. There is a lawful procedure that the landlord and tenant must carry out. However, the details of this are not in the Act.
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Compensation Awardable to the Tenant
The Landlord and Tenant Act 1954 also details that the landlord may compensate the tenant when a tenant vacates the business premises because the landlord refuses a new tenancy. The Act describes how to calculate the compensation due to which the rateable value of the property will be determined. It also explains that if a tenant has been in the commercial premises for at least fourteen years, the level of compensation will double.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
The Landlord and Tenant Act 1954 is a crucial piece of legislation that can affect commercial leases in the UK. The primary way it affects them is through the security of tenure provisions in the Act. This means that when a commercial lease reaches the lease end term date, the lease usually automatically renews. However, the Act affects commercial leases in terms of rules around this. This article has explained some of these. For example, where the Act does not apply to commercial leases and how a commercial lease can contract out of the Act. The Landlord and Tenant Act 1954 also affects commercial leases in terms of how parties to a lease can terminate a protected lease and the levels of compensation that may be due.
If you need help understanding how the Landlord and Tenant Act 1954 affects your commercial lease, contact our experienced leasing lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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