What Actions Should Commercial Tenants Take if They Receive a Section 25 Notice?

When you enter into a lease for a commercial property, you should ensure that you have a good understanding of your rights and obligations. More particularly, your tenancy may be impacted by the Landlord and Tenant Act 1954 in multiple ways. While the Act guarantees you certain rights, it also requires you to follow specific procedures following the expiration of the original term of the lease. This article explains how a Section 25 Notice operates under the Act and the actions a commercial tenant should take if they receive such notice. 

Commercial Lease and the Impact of the 1954 Act

In a commercial lease, you occupy a commercial property in return for rent. The lease will specify a commencement and an end date. Throughout the term, the landlord and the tenant must respect their rights and obligations. 

Usually, a tenant takes a lease of the premises for a defined time and will vacate the premises at the end of the defined term. However, under the Landlord and Tenant 1954 Act, all business tenancies have a right to ‘hold over’ past the end of this term: security of tenure. In other words, business tenants can stay in occupation past the end date of their lease. Following this, the tenant can request a renewal lease.

It is now common for leases to be ‘contracted out of the Act’, which essentially means that the tenant accepts to forgo their rights explained above. Landlords prefer this as it gives them more control over the occupation of the premises. To contract out validly, a few documents must be executed before the lease is granted, which solicitors can assist you with. 

What is a Section 25 Notice?   

When you benefit from the Act as a commercial tenant, you can request a renewal lease on the same terms as your existing lease. There are procedures that the landlord must follow if it wishes to oppose the lease renewal or propose new terms for that lease, which is the issue of a Section 25 Notice. This gets its name from the relevant section of the Act. Your commercial landlord may use a Section 25 Notice if they either wish to:

• oppose the renewal of your tenancy on one of the limited legal grounds to do so; or
• renew the tenancy but suggest new terms.

What Actions Should I Take?  

You should know your options if you receive a Section 25 Notice as a commercial tenant. 

First, you should receive a Section 25 Notice in the prescribed form, including detailed notes explaining the form. 

Secondly, you should ensure that a ‘competent landlord’ serves this. They must be legally entitled to serve the notice and sometimes may not be the party you generally see as your ‘landlord’. Therefore, if you receive a Section 25 Notice, the first step is to assure yourself that a competent landlord gave it to you. It would be helpful to get legal advice at this stage, as your landlord could change during your renewal process. 

Check the Form

As there are strict legal rules around Section 25 forms, you should ensure that the form is given to you correctly. This can include you checking:

• the date the tenancy will end is correctly on the form;
• that you receive the notice within the legal timeframe, which is no more than 12 months and no less than 6 before the date on which the landlord wants the lease to end;
• the property address on the form relates to your commercial premises; and
• what actions the landlord wishes to take through the form, whether it is opposing the renewal, or suggesting new terms for renewal.

If your landlord opposes renewal, check that they use one of the seven legal grounds. Note that you may have entitlement to compensation for specific grounds.

Negotiate

If the Section 25 Notice proposes the terms for the renewal lease, the initial step is to negotiate with your commercial landlord on the terms they suggest.

Make a Court Application

Suppose you cannot agree to the renewal lease terms with the landlord or the landlord has opposed renewal. In this case, you must respond to the Section 25 Notice within the expiry date it states by applying to the local county court. You must do so to avoid losing the protection under the Act, and your lease ending. 

Once you make the court application, your tenancy becomes a “continuation tenancy” until three months after the court decides what to do with the commercial lease. Also, before the court decides, your landlord can apply for “interim rent” from you. If your landlord correctly stipulates one of the limited legal grounds to end the lease, the court may rule in favour of termination. Alternatively,  the court can grant you a new tenancy and determine its terms.

UK Lease Assignment Template

If you are moving out of your leased space and assigning the lease to another party, you are required to notify your landlord and obtain their consent. Use this free proforma template for this purpose.

Download Now

Key Takeaways

A Section 25 Notice is a legal notice a landlord can serve you with when you have a commercial lease with security of tenure, but the landlord either wishes to oppose a renewal of the lease or set out the terms of that new lease. We have listed several steps which you can take in this situation. Ultimately, you should seek legal advice to ensure that you choose the best option for your business and avoid any procedural mistakes. 

If you need help understanding your rights and obligations as a commercial tenant, 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. So call us today on 0808 196 8584 or visit our membership page.

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