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Before you create a commercial lease agreement with your tenant, you have some choices regarding some of the rights it may contain. One of these is a tenant’s right to security of tenure, which makes the commercial lease a protected lease. Should you not want your commercial tenant to enjoy this right, you may decide to avoid it in your commercial lease. This article will detail your options should you wish to opt out of automatic lease renewal.
This cheat sheet outlines what you should be aware of in your lease agreement.
What is Security of Tenure or Renewal Rights?
Security for tenure is a protection you grant to commercial tenants. It provides a tenant with a six-month or longer lease the automatic legal right to lease renewal on the same terms as the current lease once the lease reaches the end term date.
Where the security of tenure applies, a tenant may also request new terms for the renewed lease. You can negotiate these new terms with the tenant. However, if you want to deny the renewal, there are only limited instances where you can cease the tenancy.
How Can Landlords Avoid Automatic Lease Renewal
While security of tenure may provide you with stability in terms of occupation of your property, there are reasons you may wish to avoid it. For example, you might want flexibility to:
- remove problematic tenants; or
- regularly raise your rental price.
If you do want to avoid security of tenure in your commercial lease, there are four ways to do so, as described below.
1. Contracting Out of Automatic Lease Renewal
Perhaps the most obvious way for a commercial landlord like you to avoid security of tenure is to contract out of the relevant provisions in the Landlord and Tenant Act 1954 (‘LTA’).
For a commercial lease to exclude security of tenure successfully, you must follow a set of legal procedures to contract out of the provisions of the legislation. This involves:
- you providing your potential commercial tenant with written notice that the lease contracts out of the security of tenure provisions and states the consequences of this;
- your tenant stating in writing that they agree to the above and understand it; and
- the commercial lease stating that it contracts out of the relevant provisions of the Act and specifies that points one and two took place.
2. Short Lease
Security of tenure only applies to commercial leases which last six months or more. Therefore, one way to avoid it is to have a commercial lease with a lease term of six months or less. This way, it is not a protected lease, and further actions are unnecessary to avoid security of tenure.
3. Licence
If you offer your commercial tenant licence, the LTA does not apply, so neither does security of tenure. However, it is essential to ensure that you do have a licence and not a lease.
The two are similar as both allow a business owner to occupy commercial premises for their business purpose. However, if you offer a commercial lease, you have an interest in the land and exclusive possession, which a licence does not provide.
4. Tenancy at Will
Like a licence, the LTA does not apply to a tenancy at will, therefore, nor does security of tenure. A tenancy at will is often used to allow a tenant to occupy a commercial property before a commercial lease commences, such as where the lease agreement is in draft rather than complete format.
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Key Takeaways
Security of tenure provides commercial tenants with an automatic right to lease renewal and to request new terms for a new lease. If you want to avoid security of tenure as a commercial landlord, you can contract out of such obligations. Alternatively, you can:
- offer a commercial lease that is less than six months long to avoid security of tenure applying; or
- provide a licence or a tenancy at will.
If you need help opting out of automatic renewal rights in your lease agreement, 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 for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
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