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Do commercial tenants have rights?
The rights of commercial tenants are more limited than residential tenants; however, commercial tenants do still have rights.
Commercial tenants may have the protection of the Landlord and Tenant Act 1954. The Act grants Security of Tenure to tenants who occupy premises for business purposes. The tenancy will continue after the contractual termination date until it is ended in one of the ways specified by the Act. When terminated under the Act, the tenant has the right to apply to Court for a new lease to be granted and the Landlord can only oppose this as specified by the Act.
Does the Act apply to you?
Section 23(1) of the Act provides that there must be:
- A tenancy: a lease, not a licence
- The premises must be occupied by the tenant: this can be the tenant themselves, through an agent or manager, or through a company that the tenant owns;
- The premises must be occupied for business purposes: the business must be the main purpose of the occupation, but need not be the sole purpose, for example a shop with a flat above will be included.
- Agricultural, mining, service and farm business leases are excluded by the Act. In addition, railway property, military establishments and dockyards are also excluded.
- A tenancy that can be terminated by either landlord or tenant at any time is excluded by the Act.
- Fixed term tenancies not exceeding 6 months are excluded unless the tenancy contains a provision for renewing or extending the term beyond the 6 months or the tenant has been in occupation for a period exceeding 12 months
Has your Tenancy been contracted out?
This occurs when formal notice is served on the tenant by the landlord and the tenant makes a declaration to an independent solicitor that they understand they will not be protected by the Act.
The procedure when the Act applies:
If the Lease has not been contracted out, the lease will not come to an end on the expiry date of the lease. The lease will continue at the same rent and the obligation to pay rent remains for the tenant.
Section 27 Notice
If the tenant is happy for the lease to end on the contractual expiry date, the tenant can serve a “Section 27 Notice” on the Landlord at least 3 months before the end of the current lease or leave the premises by the end of the lease.
Section 26 Notice
If the tenant would like the lease to continue, they can serve a “Section 26 Notice” on the landlord. This must be given to the landlord between 6-12 months prior to the start date stated in the Notice and it must indicate the terms of the new tenancy. This cannot be served after a Section 25 Notice has been received.
If the landlord wishes to oppose the grant of the new tenancy, the landlord must serve a Counter-Notice on the tenant within 2 months of the tenant’s request. The landlord must state the grounds for opposition which are provided in Section 30 of the Act.
The Grounds in Section 30 of the Act are as follows:
- Tenant’s failure to repair
- Tenant’s persistent delay in paying rent
- Substantial breaches of other obligations by the tenant
- The landlord can offer suitable and reasonable alternative accommodation
- There is currently a lease of part and the landlord of the whole property objects to the lease as a higher rent can be obtained by single letting the whole building
- The landlord intends to demolish or reconstruct the property and could not reasonably do so without obtaining possession
- The landlord intends to occupy the holding for his own business or as a residence
Some of these grounds are difficult for the landlord to prove.
If the landlord wishes to oppose the grant, the tenant must apply to Court for a new lease in order to remain protected under the Act. The application must be made prior to the commencement date specified in the Section 26 Notice.
If the landlord does not oppose the grant of a new tenancy, negotiations can commence for the terms of the new lease.
The Section 26 procedure is not available to tenants in a periodic tenancy or tenants with a lease of a fixed term of 1 year or less.
Section 25 Notice
If the landlord would like the lease to continue or they object to the tenancy renewal, the landlord can serve a “Section 25 Notice”. This cannot be served if the tenant has already served a Section 26 Notice.
The Notice must be given to the tenant 6-12 months before the termination date stated in the Notice and it must state whether the landlord will oppose a new tenancy. If the landlord opposes a new tenancy, the Notice must state the Section 30 grounds the landlord relies on. The landlord can then apply to Court to terminate the lease. The tenant can also apply to Court for a new lease before the end of the Notice period.
The landlord must indicate the proposals for the terms of the new lease. Negotiations will then commence for the grant of a new lease. Should there be a delay in negotiations, the tenant must apply to Court before the expiry of the Section 25 Notice or the tenant will lose their rights under the Act.
If the tenant does not obtain a new lease, the tenant may be entitled to compensation in the certain circumstances, for example if a landlord’s Section 25 Notice (or it’s Counter Notice to the tenant’s Section 26 Notice) opposes renewal solely on “no fault” grounds, and neither party has applied to Court.
The procedures above may seem relatively formulaic and therefore straightforward, but it is vitally important that you seek legal advice before going through this process (or as soon as possibly after being served with a Notice). Our Commercial Property team can not only ensure that Notices are prepared and served correctly (thereby avoiding any suggestion that they are invalid), but can also help you consider all of the available options before embarking on this process.
If you would like further advice on this topic, please feel free to contact a member of our Commercial Property Team.