Advantages and Disadvantages of Security of Tenure in a Commercial Lease 

As a commercial landlord or business tenant, when you enter a commercial lease, you will both negotiate the lease terms. This includes, for example, agreeing on a rental amount, what the lease term will be and the repair and maintenance responsibilities. One thing you and the other party will also have to decide on is whether the commercial lease will have the security of tenure. If you are a commercial tenant, you will likely want this protection in a commercial lease. This grants you a statutory and automatic right to lease renewal. However, many commercial landlords steer away from it. To help you decide, this article will explain the advantages and disadvantages of the security of tenure in a commercial lease. 

What is the Security of Tenure?

Security of tenure is a type of legal protection for tenants in a commercial lease. It is a legal protection from the Landlord and Tenant Act 1954. It means that once a commercial tenant’s lease reaches its end date, the tenant enjoys the legal right to automatic commercial lease renewal on the same lease terms or potentially better ones. You may also hear people refer to this type of commercial lease as a ‘protected lease.’

Advantages of Security of Tenure 

1. Protection of Lease Renewal

The main advantage of a commercial lease with security of tenure is for the tenant who enjoys the legal protection of lease renewal. This means they can feel fairly confident that they can remain in their commercial premises on a long-term basis. Therefore, a commercial tenant does not have the costly, timely and stressful trouble of looking for a new commercial property. It also means there is no disruption to their business, and they can establish a regular and potentially long-term business address. The latter is very significant if the company is customer-facing.

2. Ease of Procedure for Lease Renewal 

A further advantage of a lease with security of tenure is that the procedure for lease renewal is fairly simple. This applies to both the commercial landlord and tenant. If a commercial tenant wishes to remain in occupation, there is nothing they need to do. Instead, they simply remain, which is to ‘hold over,’ and the lease continues with the same terms.  Alternatively, the commercial tenant can serve a Section 26 Notice on their landlord specifying that they would like a new lease and any new lease terms they wish to suggest. If the landlord has no grounds to oppose lease renewal, they can also serve a notice. They use a Section 25 Notice for their tenant where the tenant has not already given them a Section 26 Notice. The commercial landlord can do this before the current lease ends and specify new lease terms.

Disadvantages of Security of Tenure  

There are, unfortunately, disadvantages to the security of tenure for a commercial lease.

1. Right to Lease Renewal is Not Absolute 

A tenant with a lease with security of tenure does not always enjoy the automatic legal right for lease renewal. This occurs when the commercial landlord has one of the seven legal grounds for refusing renewal. These include, for example, where they wish to occupy the property or where they wish to demolish it.

2. Practical Difficulty in Refusing Lease Renewal 

 
If you are a commercial landlord, while you may be able to refuse your tenant’s request for a lease renewal, it may be quite difficult. This difficulty can be attributed to you having to prove one of the seven grounds under the Landlord and Tenant Act 1954. As such, you may be unable to terminate the lease agreement. Alternatively, if you did not have a security of tenure clause in the lease agreement, terminating the lease would likely be far easier.

3. Landlord Has Less Control of Property  

A further disadvantage to the security of tenure in a commercial lease is that the landlord has less control of their property. This is because they may not be able to terminate the lease and may lose out on potential increased rent. If a landlord is able to lease their commercial property to a new tenant, they may be able to negotiate a higher rental amount. As a protected lease automatically renews on the same or better lease terms, the rent will likely remain the same. However, if the commercial lease has a rent review clause, this is an opportunity at that point for the landlord to raise the rent.

4. Procedure to Refuse a Lease Renewal Can Be Cumbersome and Costly 

If you are a commercial landlord, you may well have grounds to refuse your tenant’s request for lease renewal. However, the procedure that you must follow to refuse your tenant’s request for a lease renewal formally can be time-inefficient and costly. While you would still serve a Section 25 Notice, a hostile notice may take time and money. It could also result in you incurring court costs if your tenant disputes the grounds you have specified to deny the renewal of the lease. This is because you will need a court order to regain possession and evict the tenant. 

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Key Takeaways

A commercial lease may have security of tenure. You can also refer to this as a ‘protected lease’. Security of tenure means that the commercial tenant enjoys the legal right of automatic lease renewal once the lease reaches the end-of-term date. There are advantages and disadvantages to the security of tenure in a commercial lease. This article has explained these. For example, security of tenure is advantageous for commercial tenants as they remain in the property. This has many advantages to them as a business. However, there are also disadvantages to the security of tenure in a commercial lease. For example, a commercial landlord may not be able to terminate the tenancy and evict the tenant quickly where they wish to.

If you need help understanding the advantages and disadvantages of security of tenure in a 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.