Security Of Tenure Under Review By The Law Commission: The Impact On Business Tenancies
Reasons to choose Wilson Browne
The Law Commission have started a review of the current ‘contracting out’ model of Security of Tenure.
In their paper (Law Commission Documents Template) published last month, they are seeking views on whether the current method remains the right approach or if the legislation requires review and updating.
Some businesses may own the properties from which they trade giving them the security of knowing they will not have to vacate unless they decide to. However, many businesses lease their premises from a landlord allowing them flexibility to relocate or move to larger premises should they outgrow their current base. There are many arguments which can be made for and against leasing business premises. However, this ultimately comes down to the businesses needs at the time.
For those businesses who do lease their premises, the Landlord and Tenant Act 1954 allows a special provision in commercial tenancies known as Security of Tenure. This provides additional protection to commercial tenants by granting a right for tenants to continue to occupy leased premises and obtain a renewal tenancy. This is even after the fixed term of the tenancy has expired and they would otherwise be required to vacate the premises and relocate their business.
For this statutory protection of Security of Tenure to apply, the lease must satisfy certain conditions. Firstly, the lease must be of premises being occupied by the tenant for the purposes of carrying on its business. Secondly, it must be either a periodic tenancy or a fixed term tenancy due to come to an end on a known date covering a term of at least 6 months. Including a break clause within the tenancy will not prevent a tenant from obtaining security of tenure. However, if the lease is for a set term and then from year to year thereafter, this would not benefit from the statute.
At the expiry date of the tenancy, the landlord may be agreeable for the tenant to continue to occupy the property on the same terms as the original tenancy agreed upon and they therefore need take no further action.
However, the landlord may wish to remove the current occupier and take the premises back or grant a renewal on altered terms, for example on an increased rent. To allow the landlord to retain some control in this regard, the Security of Tenure provisions are subject to the landlord being able to oppose the tenancy continuing.
There is a set process which the landlord must follow in which the landlord would be required to serve a notice giving between 6 and 12 months’ notice to the tenant, following which the tenancy will come to an end. Within this notice, the landlord must state whether they oppose the grant of a new tenancy or, if they are willing to grant a new tenancy, set out their proposals.
By way of protection for both parties, it is possible for agreement to be reached that Security of Tenure will not apply to the tenancy. This is known as ‘Contracting Out’. To contract out of security of tenure, agreement must be reached between the parties prior to the start of the initial tenancy term and a set process followed.
The effect of contracting out is to exclude the security of tenure provision from the lease and prevent the tenancy from continuing after its set expiry date. The tenant will have no right to remain in the commercial premises and will have to vacate unless the parties mutually agree otherwise and the landlord offers a new lease of the same premises. If security of tenure is contracted out, the tenant will have no right to compensation from the landlord at the end of the lease.
It is on ‘Contracting Out’ that the Law Commission have most largely set their focus and looked towards how this can be reformed and brought up to date. In their paper, the Law Commission ask questions about whether the law should be changed and if so, what that reform should look like. They consider four different models of security of tenure and how it could work.
The Legal 500 recognised Commercial Property team has a wealth of experience in dealing with Landlord and Tenant matters and will keep fully abreast of all developments and are all the help you need.
Mandatory statutory security of tenure
This would be where all tenants are given the security and agreement between parties cannot be made for it to be contracted out. This would remove control from the landlord in being able to oppose the tenancy continuing or being able to alter the terms on which the tenancy continues. This therefore puts tenants in a stronger position to remain in the premises on the same terms and possibly avoiding paying increased rents which would have otherwise been agreed.
No statutory security of tenure
This is where there is no possibility of security of tenure and should parties wish to continue the tenancy after the agreed fixed term, they will need to mutually agree to continue the tenancy and whether this is on the same terms. This would provide increased flexibility for landlords who have certainty that a tenancy will end and the possibility of obtaining higher rents. However, this may put tenants in a weaker bargaining position.
A ‘Contracting In’ regime
Whereby the default would be for tenants to have no security of tenure, but the parties can opt-in to the regime by agreement. Essentially the opposite to the current regime. This may provide each party more flexibility in choosing whether or not it suits them best to have Security of Tenure provisions in the circumstances and could also avoid situations whereby the protection is inadvertently provided because the current ‘contracting out’ process has not been correctly followed.
‘Contracting Out’ regime
Is whereby the current position of security of tenure being the default with parties being able to mutually agree to opt-out. The biggest advantage of the regime continuing as it is, is that the process is well-known and familiar, understood and followed by many landlords, tenants and professionals who may otherwise be faced with a period of uncertainty were a change to follow.
If you need any help with Landlord and Tenant matters, please get in touch with us or call us at 0800 088 6004.
Posted:
Jamie Boswell
Trainee Solicitor
Jamie is a Trainee Solicitor in our Commercial Property team at our Kettering office.