The Landlord and Tenant Act 1954 ( ‘LTA’ ) created a ‘Business Tenancy’ protected by law by conferring a degree of security of tenure on business tenants.
A tenant needs to agree with the landlord whether or not the lease being offered is to be a protected ‘Business Tenancy’.
Protection requires the lease to be ’included’ within the relevant provisions of the LTA. For this inclusion the lease needs to be granted without any ‘exclusion’ procedure taking place ( see further below ).The lease may automatically continue at the end of the term and a tenant may apply for a new lease on similar terms to the old one ( save for the level of rent ). Formal procedures should be followed for renewal.
‘Renewability’ can give the lease a value. The security created allows the tenant to invest time, trouble and expense in the business at the premises, ensuring its development and profitability. Provided the lease is transferable, it may then be sold at a later date as part of a transfer of the business as a going concern. A buyer will be reassured by the LTA protection.
However, under the LTA the landlord is entitled to refuse renewal on certain grounds. These grounds have to be genuine and provable in court - if it came to court.
The refusal grounds, briefly, include the tenant’s failure to repair or persistent delay in
payment of rent or any substantial breach of other obligations. These grounds require acts or omissions on the part of the tenant.
There are other grounds which are the prerogative of the landlord. These are the landlord’s offer of alternative accommodation or his intention to develop the premises or to occupy the premises for his own business or residence.
The tenant needs to consider whether the landlord might cite any of these grounds in the future. Generally commercial landlords are in the business of remaining a ‘landlord’ and thus allow renewal. However landlords’ circumstances may change so that they then consider citing grounds for refusal. The protection of the LTA in the future is therefore not guaranteed. However, it creates some certainty by reassuring tenants that renewal is at least a distinct possibility.
If the lease is ‘excluded’ from the protection provisions of the LTA it will automatically come to an end at the end of the term.
The lease can only be excluded if, before it is granted ( or agreed to be granted ), formal notice of such exclusion is given by the landlord (or landlord’s solicitors) to the tenant (or tenant’s solicitors) and the tenant then acknowledges the notice by formally declaring that it has been agreed that the lease is to be excluded.
This article is a brief and basic outline of the nature and effect of the relevant sections of the LTA. It is important to consider taking proper legal advice before entering any actual transaction involving the LTA.