A commercial lease is where a property owner agrees that a business can have the sole occupation of their property in return for rent. The lease will be for a specific period, known as the lease term. The details of a lease are in the commercial lease agreement. This is a legally binding contract to which a landlord and tenant must sign and adhere. Although the lease agreement will detail the rights and obligations of each party, there are also rules in UK law that all leases must follow. One piece of legislation is the Landlord and Tenant Act 1954. This article will unpack how to apply the law to your commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
Landlord and Tenant Act 1954
The Landlord and Tenant Act 1954 (the Act) contains legal rules for both landlords and tenants. One of the most significant provisions of the Act that apply to your lease involves security of tenure.
Security of tenure protects commercial tenants by offering them the automatic legal right for lease renewal once they reach their term end date. You may hear people refer to this as a statutory right. However, the lease will not automatically renew if a commercial landlord raises one of the seven reasonable grounds to refuse lease renewal.
However, most commercial leases nowadays choose to contract out of the security of tenure provisions in the Act. Accordingly, the tenant and landlord agree the lease is a contracted-out lease or non-protected lease. There are specific laws about contracted-out leases which include the procedure to contract out.
When a commercial landlord and tenant decide to contract out of the security of tenure provisions of the Act, they must do so legally. This will involve certain processes set out below.
As part of the legal procedure to contract out of the Act, a landlord must serve a tenant a warning notice. This explains that the commercial lease will be a contracted-out or non-protected lease. The law details that there are three ways to serve this:
- by personally giving it to the tenant;
- by leaving it with the tenant; or
- posting it to the tenant.
It is good practice for a commercial landlord to consider which of these is most suitable for the circumstances and their tenant. Since all tenants require this notice, as does any guarantor to the lease, a landlord may deliver each through different methods.
As there is a strict legal procedure for a contracted-out commercial lease, it is essential that the notice is correct. Otherwise, the warning notice may be invalid. Following best practice, you can use notices in the Regulatory Reform Order 2003.
A commercial landlord or tenant can enter a lease without legal advice. This means that they may decide to contract out of the Act so that security of tenure does not apply. However, since this provision protects a tenant, it is best practice that both parties to a commercial lease receive legal advice.
Further, given the strict legal procedures of a contracted-out lease, legal advice will help ensure each party adheres to the law.Continue reading this article below the form
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Provisions in the Landlord and Tenant Act 1954 protect most commercial leases with security of tenure. This means that a commercial tenant has a legal right to automatic lease renewal once the term ends. A landlord can only object to this if they have one of the seven legal grounds to do so. However, parties to a lease will not always want security of tenure, and where they do not, they can contract out of this.
If you need help understanding the Landlord and Tenant Act 1954, our experienced leasing lawyers can assist 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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