Property lawyers often refer to “security of tenure”, “protected leases”, “business leases” or “contracting out” but don’t often explain what this terminology actually means in practice. I have found myself in the past few weeks explaining to both established and new clients what these terms mean and why they’re important in the context of a commercial lease. With that in mind, I thought this would be a good opportunity to cut through some of the legal jargon and provide some meaningful explanation as to what these terms mean and why they’re so frequently encountered.
“Security of tenure” is the term used to describe the protection afforded to tenants of business leases pursuant to the Landlord and Tenant Act 1954. A business lease is one where a property is occupied for the purpose of a trade or profession subject to some specific exclusions such as a tenancy for less than six months, a mining lease or a farm business tenancy.
Identifying whether a lease has the benefit of security of tenure is important as, where security of tenure applies, at the expiry of the contractual term of the lease, the tenancy doesn’t in fact end. The tenant is entitled to remain in occupation (often referred to as “holding over”) on the terms provided for in the lease and is entitled to request a new lease, again, on the same terms subject perhaps to a rent review and a landlord is only permitted to refuse the grant of a new tenancy on a limited number of statutory grounds. In circumstances where a landlord can rely on a statutory ground for the refusal of a new tenancy, a tenant may be entitled to compensation.
Business tenants may well build up a significant amount of goodwill from their trading premises and security of tenure therefore provides protection to business tenants allowing them to continue in occupation subject to statutory exceptions. In the current market, as a business tenant, it is important to consider whether your lease affords security of tenure as costs in respect of relocation could be prohibitive.
In order for a business lease to exclude security of tenure, the landlord and tenant must agree at the outset of the lease to “contract out” of the 1954 Act security provisions. The landlord is required to serve a notice on the tenant before the lease is completed and the tenant may be required to swear a statutory declaration confirming it has understood the position and remains willing to proceed. In these circumstances, at the end of the lease term, the tenant can be refused the grant of a new lease at the sole discretion of a landlord or a new lease may be offered on any terms the landlord so wishes.
Hopefully this has demystified security of tenure, but if you require further information or assistance please contact a member of our commercial property team.
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