Contracting out of security of tenure

Under the Landlord and Tenant Act 1954, the tenant of premises from which a business is carried on has security of tenure when the agreed term of a lease comes to an end. This means that, even though the fixed term of the lease has ended, tenants of business premises have the right to remain in occupation at the end of the contractual term of a lease and the right to apply to court for the grant of a new lease.

However, in many leases the parties agree a declaration of exclusion from the relevant sections of the Act at the start of the tenancy, which means the tenant has no right to renew the lease when it expires. There are a number of interesting aspects to this.

Firstly, there are circumstances where exclusion of the act is a useful added protection to a landlord who is likely to require the premises back at the end of the lease. This may be the case where part of a property is being let or there is a strong possibility the property will be re-developed or sold with vacant possession in the future.

However, even without the exclusion, a landlord can still regain possession under certain grounds specified in the Act. These include the landlord wishing to occupy the premises itself, proposed re-development, persistent breaches by the tenant, proposed sale or letting of the whole property and offer of alternative accommodation. The main difference within the Act is the landlord may have to prove one of these grounds and apply to court for possession and, if the landlord wishes to occupy itself, the property has to have been owned by that landlord for at least 5 years.

Also within the Act, parameters are set for the terms of a new lease including the rent and length of lease. The rent is to be the amount the premises might reasonably be expected to be let in the open market and if not agreed can be set by a court order. The tenant has no such protection if the lease has been excluded and only has the option of walking away if the terms offered are too onerous.

A proposal during letting negotiations to exclude the Act may result in some prospective tenants withdrawing or seeking compensation in terms of a lower rent. In general if a property is being held as a long term investment and is self-contained, exclusion from the Act is probably not applicable but if a property owner is just seeking rental income for a few interim years, exclusion of the Act would be appropriate.

Duncan Young
Mere Commercial Ltd