Landlord and Tenant Act 1954 - Superhero in Security of Tenure

Navigating Lease Expiry: Your Guide to the Landlord and Tenant Act 1954

In this episode of 'That Retail Property Guy,' host Gary Marshall explores the complexities of lease expiry for UK business tenants and the protections provided by the Landlord and Tenant Act 1954. Gary discusses the concept of 'security of tenure,' which allows tenants to continue occupying their premises after lease expiry and to negotiate new lease terms under the same conditions. He emphasises the importance of understanding this legislation, proper notice service, and seeking professional advice to avoid costly mistakes. This episode aims to educate and empower small and medium-sized retail tenants and their larger counterparts, helping them to leverage legal safeguards and secure favourable lease terms. Tune in to be entertained, informed, and inspired by Gary's insights and stories.

00:00 Introduction to That Retail Property Guy

00:24 Facing Lease Expiry: Challenges for Business Tenants

00:51 Understanding the Landlord and Tenant Act 1954

01:09 Security of Tenure Explained

01:41 Navigating Lease Expiry and Renewal

02:56 Legal Nuances and Seeking Professional Advice

07:35 Types of Notices Under the 54 Act

11:04 Negotiating the New Lease

12:56 Conclusion and Final Thoughts

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Transcript

0:00

Welcome to That Retail Property Guy with your host, Gary Marshall. In each podcast episode, we delve into topics relating to the particular overlap between estate management and accounts payable from the perspective of a retailer as tenant. Sharing stories and insights through Gary's unique lens, we hope you'll be entertained, enlightened, and maybe a little inspired. From time to time, business tenants up and down the land will face the contractual end of their lease. And for some, this is nerve wracking, causing sleepless nights and a fear for the future. Particularly many small and medium sized businesses. are not geared up to deal with this. They know their business, not the landlord and tenant business. So it's so sad to see a business close at expiry because the tenant wasn't clued up. Luckily, many, but not all, business leases are protected by the Landlord and Tenant Act 1954. It's like a superhero for business tenants. It can help level the playing field against an overbearing landlord. But it's complicated stuff, so let's approach it as simply as possible. Basically, we're talking about security of tenure, which refers to the tenant's protected right to continue to occupy the premises under the lease, even when that lease comes to an end, and to claim a new lease on the same terms as the old one, though at a market rent. Now, bear in mind, that a lease is a contract with a start date and an expiry date. In general, with contracts for anything else in life, You know what to expect. You anticipate the expiry date. You know it's time to renew your subscription, or start looking around for an alternative deal. At least in England and Wales, that doesn't necessarily apply to commercial leases of property, where the occupier runs a business. In this scenario, there's a presumption that the end doesn't mean the end. It's just a cliffhanger before the next instalment. It can seem odd that expiry doesn't necessarily mean expiry. I've worked with numerous visiting American property guys, or even UK decision makers from a non property background, to know that it often surprises the unwary, to the extent of sometimes scuppering plans they might have. At first glance, it might seem odd that the privileges granted under any contract don't simply end when the contract ends. It works like that for most contracts, deals, and commercial arrangements, so why not for property? But since 1954, and wow, that's over 70 years ago, business tenants of commercial premises have enjoyed a sense of protection from a landlord who looks at the lease expiry as an opportunity to shake things up. But expiry doesn't mean Automatic eviction or accepting the landlord's proposal. So long as the tenant gets good advice and takes the right steps, they can leverage their protection to get a fair deal. So every tenant of business premises should know their legal position with regard to the Landlord and Tenant Act 1954. It's your friend. Not every lease is covered though. So let's work through this in detail. And for once, reading the lease might not help. These security of tenure provisions are not a contractual term. They're not engrossed in the signed lease. They're afforded by legislation, an act of parliament, which overrides anything the lease might indicate to the contrary. Unless certain hoops have been jumped through to ensure that the lease isn't bound by the Act and some leases are not bound by the Act. So if in doubt, consult an expert, an experienced colleague, a surveyor or a lawyer specializing in property. The nuts and bolts are simple but there can be nuances and some classifications of lease or tenancy might be right out on the edges of the Act's protection. In simple terms, Part 1 of the Fifty Four Act has more or less fallen away, but Part 2 is still very strong and very much relied on in England and Wales. The Business Tenancies Order 1996 applies in Northern Ireland, and security of tenure legislation doesn't apply at all in Scotland. Woe betide the Southern based asset manager who doesn't know that. But more on that in another episode. Part 2 of the Fifty Four Act applies in England and Wales, and it specifies that In general, landlords can't just throw business tenants out when the lease comes to an end. The Act offers protection to business tenants, so the landlord has to jump through certain hoops, and generally should look at lease expiry as an opportunity to renew, rather than evict, and to renew at a realistic and negotiated rent, not simply at whatever value the landlord asks for. But many small and medium sized retail tenants don't know this, and either don't know where to ask for support. or feel they can't afford that support. So sadly, many retail tenants end up either agreeing exorbitant rents at renewal, feeling they have no options, or choosing to close down because the terms that the landlord demands seem just unaffordable. It's tragic to see a smaller business suffer, when in fact they might be protected by the law. But professional advice can seem expensive. However, it might pay for itself in the ongoing savings and more advantageous terms that can be leveraged or negotiated, especially if multiple tenants unite against a shared landlord. The protection offered to the tenant is really intended to protect their business, their established reputation in the marketplace, their goodwill which has been earned through their own endeavors while trading at the premises. Goodwill in an established location can be very valuable. An established proximity to certain places is also valuable. The Fifty Four Act protection is intended to avoid a tenant having to simply hand that goodwill and established presence back to the landlord, and then watch as the landlord re lets the premises to the highest bidder, which might be a competitor simply looking to take advantage of that established goodwill. So what are those simple nuts and bolts of the Fifty Four Act? Bear in mind this isn't legal advice, just an entertaining discussion that might trigger a few thoughts for you to check out, but we can consider that leases or tenancies which are covered by the Act do not automatically terminate upon reaching their contractual expiry date. We can consider that the lease or tenancy is deemed to continue to roll along a circumstance known as holding over until either the landlord or the tenant does something There is one obvious sidestep to this. The tenant must be in occupation for business purposes at the date of expiry. So a tenant who doesn't want to renew, doesn't want to get embroiled in holding over or negotiating renewal, could simply vacate the premises and hand the keys back on or before expiry, and therefore remove the lease from the protection of the Fifty Four Act. So in that case, the expiry date is indeed the end of the story. Well, perhaps except for any litigation over dilapidations or any other breaches of obligation. But assuming the tenant wants to remain in occupation under the protection of the Fifty Four Act, that lease will hold over until a formal notice is served to comply with the Fifty Four Act. The correct and accurate service of notices is crucial. Again, if in doubt, seek advice from a property professional. who specialises in this sector. An incorrect or mis served notice might be deemed invalid and so puts everything back into holding over until a fresh and correct notice is served. There are four types of notice under the 54 Act. A section 25 notice is issued by the landlord. It can either be friendly, indicating terms for a renewal, or it can be hostile, Indicating the opposal of a renewal. Section 26 notices are issued by the tenant to the landlord, proposing their terms for a renewal. There is also the less common Section 27 notice, issued by a tenant, indicating that no renewal is required. It's worth mentioning that if a landlord serves a hostile Section 25 notice or objects to the tenant's Section 26 notice, The landlord must be able to cite a really good reason, which are clearly specified in Section 30 of the Act. These really good reasons, known as Section 30 Grounds, basically cover that the tenant has allowed the property to fall into disrepair, is in persistent arrears of rent, or has committed other breaches of the lease, or that suitable alternative accommodation is available. that the tenancy was created by a subletting, so it's not a direct deal with the landlord, or, and now we're getting more complex, that the landlord intends to redevelop the property, or to occupy the premises themselves. The first few section 30 grounds are considered to be the tenant is at fault, but of course the landlord must prove this. The second batch of section 30 grounds are considered tenant not at fault, and as such, trigger another provision about statutory compensation. More on that in a moment. Of course, any of these grounds for objecting to a renewal can be disputed. There's a bucket load of case law and litigation to prove one way or another. And the landlord must be able to prove that any development is a real intention, backed by plans and approvals and funding, not just a pipe dream, an aspiration, or a cover story. What is important to note is that the proactive service of notices also triggers a requirement. prescribed by the 54 Act to file an application in court to formally protect the tenant's rights. No court application, no protection. It seems simple, yet many tenants are unaware and so lose their protection for the want of a small court filing fee. As I mentioned before, If in doubt, seek advice from a property specialist. The 54 Act specifies exactly how the notices must be set out, and there are templates available online, or once again, an experienced property specialist can help. At this point, it's worth mentioning that the legal process which will subsequently occur in court probably needs the attention of a litigation lawyer with relevant experience in this sector. It's not for the faint hearted or the ill advised. The timescale for the notices is specified too, basically giving 6 to 12 months notice, which can't be for a date earlier than the contractual expiry itself. And the legality of serving a notice under the 54 Act can also be complex. It's actually covered by another act, the 1927 Landlord and Tenant Act, which stipulates that a notice can be validly served on a tenant who is a company to its registered office, or if the tenant is an individual, to their last known place of business or residence. Notices must be in the proper old fashioned snail mail registered post kind of way. Modern emails are not sufficient and you definitely can't do it by text. So what next? Well, assuming the notice intends a renewal rather than an eviction, the next step is negotiation of the new lease itself. The tenant is entitled to a new lease on more or less the same terms as the original one. This can be handled directly between the landlord and the tenant or their appointed agent, but always with one eye on that court process. Remember, filing that application. Well, the court will then set a timetable for hearings, and the court expects action and progress by the designated deadlines. Of course, those deadlines can shift, by agreement between the parties, or by mandate from the court. But there is a presumption of action, not lack of action. And in the unfortunate event that the parties can't agree, well there is always an opportunity for arbitration via pact, or ultimately a decision by the court. And then the new lease will be granted. It might resemble the old lease, or it might be completely new, or a hybrid. which can sometimes be difficult to navigate. Terms, conditions and obligations might change. During negotiations, both parties would be looking to modernise, to build on experiences learned during the previous lease term, and to recognise changes in commercial practice and so on. The rent might change, either upwards or downwards, depending on the last time the rent was set under the old lease. And as an added complication, maybe a different rent could apply for the period between the effective date of the lease. Indicated in the renewal notice and the start date of the new lease, if they're not back to back. It's quite common for the negotiation or litigation process to propose this interim rent, which can be quite different from the old lease rent and the new lease rent. possibly as a reflection of changing values during the negotiation period. In conclusion, many leases will simply continue after expiry until a relevant notice is served. It is crucial that notices are drafted and served properly, with appropriate and realistic deadlines. It's important for the tenant to make that court application to protect their protection. Haggling the new terms might be a test of patience, and the eventual new lease might not be ideal from either party's perspective. And we mentioned compensation if the notice is hostile, or if the landlord objects to renewal, for grounds where the tenant is not at fault. The 54 Act stipulates the basis of this compensation as a formula based on the rateable value and the length of the tenant's occupation. The statutory compensation probably won't compensate the tenant for the loss of their goodwill and so on, but it is a material factor and the cost of it might deter a speculative landlord. from chancing their arm on a spurious ground for possession. Like I said at the start of this episode, this is a complex area. We'll cover it in more detail in other episodes, but for the moment, please remember the Landlord and Tenant Act 1954 is the business tenant's friend, like a superhero to protect them thank you for listening to That Retail Property Guy. I hope you enjoyed today's discussion and found it both entertaining and insightful. Don't forget to explore more episodes, and if you have ideas for future topics, feel free to share them below. Be sure to like, share, and subscribe so you can never miss an episode. For more information, visit ThatRetailPropertyGuy. com. Thanks again for tuning in.