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Landlord and Tenant Act 1954 – In or Out?
There have arguably been more pressing in/out decisions to make recently, however, the decision made at the negotiation stage as to whether a lease will be within or outside the security of tenure provisions of the Landlord and Tenant Act 1954 (LTA) can have important consequences at the end of the lease term. Equally if the issue isn’t raised and agreed at the negotiation stage this can slow down agreement of the eventual lease and in some cases end in deadlock and an abortive transaction.
Under the LTA protection is given to commercial tenants so that their lease will not necessarily come to an end at the expiration of a fixed term, as they have a statutory right to renew the lease which the landlord can only oppose on certain limited grounds. The parties do however have the option to “contract out” of the provisions of the LTA so that the tenant will not have the benefit of the right to a new lease.
A lease which has been contracted out will expire on the term expiry date stated in the lease and the tenant will have no right to carry on his business from the premises or to remain in occupation. The landlord can decide whether they want to grant the tenant a new lease (and does not have to give any reason for refusing to do so) and if the landlord is willing to grant a new lease the terms need not follow the previous lease.
If, against the wishes of the landlord, the tenant remains in occupation of the premises, this would amount to trespass and the landlord would be entitled to damages or a court order requiring the tenant to vacate.
From a landlord’s point of view, particularly in times such as these when the market is uncertain, it may be beneficial to have more control and flexibility in terms of who they let their property to, how long for, and at what price. A long term investment landlord however, may prefer to allow the security provisions to remain.
From a tenant’s point of view, if they are looking for premises for a long term business venture, perhaps where location is important, the security provisions are desirable. However if they are looking for a shorter lease to test the waters, contracting out might be a better option.
In order to contract out, the landlord must serve notice on the tenant warning them of the consequences of entering into an agreement which excludes sections 24- 28 of the LTA.
After the notice is served, the tenant must confirm in the form of a declaration that they have received the notice, read it and accept all consequences of entering into the agreement.
References to the notice, declaration and the agreement to contract out will then be made in the tenancy agreement and it is important for both parties to ensure that copies of both the notice and the declaration are annexed to or kept safely with the lease so that evidence exists that the procedure was correctly followed.
Whether in or out it is important that both landlords and tenants take advice before entering into a commercial lease. If you are looking for assistance with any aspect of a commercial property, please contact us or call 01452 411601 to discuss your personal circumstances.