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As a landlord, there are many decisions you have to make when you lease your commercial property. A commercial lease is a legally binding agreement allowing a business owner to occupy your property as their premises. Your tenant must pay rent and adhere to the legal obligations within the lease agreement. Therefore, when you commit to a new lease, you must make the right decisions regarding the tenant and how long they may be a tenant. This article will explain why a landlord might want to avoid security of tenure in a commercial lease in the UK.
Security of Tenure
Security of tenure is a legal protection a commercial lease may offer to a commercial tenant. Therefore, a lease with security of tenure is what people refer to as a protected lease. The protection comes from the relevant provisions of the Landlord and Tenant Act 1954.
Whilst security of tenure is an automatic legal right for commercial tenants in some leases, you can have a lease without it. This is where you opt out of the provisions in the Act that detail this. In this instance, you will have a contracted-out commercial lease. There is a legal procedure on how to do this, which your tenant must agree to before you both enter the lease.
Why Avoid Security of Tenure?
Although you may see reasons to have the security of tenure in your commercial lease, there are also many reasons why a commercial landlord should avoid it. We explain what these are below.
Refusal Grounds
A key reason a commercial landlord like you may avoid security of tenure in a commercial lease is that you only have limited legal reasons to refuse renewal. If you do not have one of these reasons, you can struggle to dislodge your commercial tenants.
The limited legal reasons to refuse lease renewal are:
- where your tenant has not met their repair and maintenance responsibilities;
- where rent is often late;
- if your tenant is in substantial breach of their lease obligations;
- if you can give your tenant other accommodation that is suitable and meets their needs;
- if you only lease part of the ceiling to your tenant, so they are a subtenant, and to lease the whale building to someone will give you a higher rent;
- where you need to demolish or reconstruct your property or a part of it and require possession to do so.
Change to the Property
You may not want to include security of tenure in your commercial lease because it may prevent you from making future changes to the property you already know you wish to make.
Security of tenure means that your commercial property is unlikely to have a vacancy period as the tenants continue in occupation at the end of the lease term. This means you will be unable to make changes requiring the property to be vacant. For example, if you know you want to:
- occupy the property at a future date;
- reoccupy the property; or
- change the use of your commercial property.
Bad Tenants
You may avoid security of tenure as a commercial landlord because you fear you could end up with bad tenants which you cannot remove from your property. When you do have security of tenure, one of the grounds for refusal of lease renewal is that your tenants are often late with the rent or are in breach of a substantial lease obligation, but this may only cover some scenarios.
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For example, if their business does not have a good reputation and you do not want to associate with it. If you opt out of security of tenure, taking back possession of your property in this situation is much simpler.
Key Takeaways
Security of tenure is a legal protection for commercial tenants in commercial leases. It grants the legal right of automatic renewal at the end of the lease term, and they remain in possession of your property. As a landlord, you may want to avoid security of tenure in your commercial lease. You may decide this because, for example, you know that you wish to develop your property in a couple of years. Many commercial landlords obtain specialist legal advice to address this issue within their commercial lease documentation.
If you need help understanding security of tenure, LegalVision’s 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 document. Call us today on 0808 196 8584 or visit our membership page.
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