Security of Tenure Under the Landlord and Tenant Act 1954

• Posted onNovember 15, 2024

The Landlord and Tenant Act 1954 (LTA 1954) provides protection for tenants of business premises, commonly referred to as a tenant having ‘security of tenure’ or a ‘protected lease’. Cara Forrest, Associate Solicitor working in WSP Solicitors Commer Property Department shaire her inside to the Landlord and Tenant Act 1954.

This protection allows tenants to remain in their premises after the lease term has expired and to request a new lease on similar terms from the Landlord. Where a Tenant has security of tenure, a Landlord can only oppose the grant of a new Lease if specific circumstances exist and required procedures are followed by the landlord to bring an end to the tenancy.

What exactly are the Security of Tenure Provisions under the LTA 1954?

The key provisions relating to a tenant’s security of tenure are as follows:

1. Tenant’s automatic right to renew the Lease: Under Part II of the LTA 1954, tenants of commercial properties have the right on expiry of their lease to renew it on similar terms – unless the landlord has valid grounds to oppose the grant of a new lease.
2. Landlord’s Grounds for Refusal to grant a new Lease: A landlord can only oppose the tenant’s statutory right to a new lease on any of the 7 grounds set out in Section 30(1) of the LTA 1954, namely:

• The landlord intends to demolish or redevelop the property and therefore needs to take possession back from the tenant in order to do this;
• The tenant has persistently failed during their existing lease to pay the rent;
• The tenant has failed to comply with their lease covenant to repair and maintain the property;
• There have been or are other substantial breaches of the tenant’s obligations in the lease;
• The landlord has offered and is willing to provide alternative suitable accommodation for the tenant on terms that are reasonable having regard to the current tenancy;
• The lease was created by a sub-letting of part of a property comprised in a superior lease;
• The landlord has a genuine intention to take back possession of the property and occupy it for their own business or residence.

The burden of proof is generally on the Landlord to demonstrate that the relevant  requirement has been met to oppose the grant of a new lease and to, for example, prove that the property is in disrepair or there are existing rent arrears.

• Notice Requirements: If a Landlord wishes to terminate a ‘protected’ tenancy or oppose the grant of a renewal, they must serve a Section 25 notice on the Tenant.

If the tenant wishes to request a new tenancy, they must serve a Section 26 notice on the Landlord.

If the parties cannot reach agreement regarding whether a new lease should be granted, either party can apply to the court who, based on the evidential facts, will determine whether a new lease should be granted or not.

• Compensation for Non-Renewal: Statutory compensation may be payable when a court refuses to grant a lease renewal on solely tenant ‘no fault’ grounds.  Alternatively, statutory compensation may be payable where neither party has applied to the court, but the landlord nevertheless opposed a tenant lease renewal request on no fault grounds, and the tenant agreed to vacate.

How Do I Know If My Lease Has Security of Tenure?

A commercial lease will fall under LTA 1954 Act protection unless a process has taken place before the grant of the lease to “contract out” or “exclude” the lease from the statutory security of tenure provisions.

The phrase “contracting out” is commonly used and means there is a specific clause in the lease stating the necessary procedures have taken place to exclude the lease from LTA 1954 security of tenure protection.

Before completion of the lease, the landlord must serve a formal Landlord 1954 Act Notice on the tenant and the tenant must either swear a statutory declaration or a simple declaration (depending on whether the Landlord Notice was served more than 14 days before lease completion).  This declaration is an acknowledgement by a commercial tenant that they are giving up their security of tenure statutory rights and are ‘contracting out’ their lease from the security of tenure provisions of the LTA 1954.

If you are unsure whether a lease has been contracted out of the LTA 1954, first check your lease and look for terms referring to “Part II of the Landlord and Tenant Act 1954”.  If in doubt, it’s advisable to seek legal advice to confirm whether a lease benefits from security of tenure or if it has been excluded.

What is the 5-Year Rule in the Landlord and Tenant Act 1954?

The “5-year rule” typically refers to the requirement that a tenancy must have been in place for at least 5 years before a tenant can apply for statutory compensation.

If a landlord opposes a lease renewal on grounds where statutory compensation is payable, and the tenant has been in occupation for at least 5 years, they are entitled to receive a compensation payment of one times the rateable value of the property.

If the tenant has been in occupation for more than 14 years, they are entitled to double the rateable value as compensation.

Compensation is only payable if the tenant has occupied the premises for the required 5-year period and the landlord has been successful in opposing the grant of a lease renewal under one of the required grounds.  Compensation will not however be payable where the landlord’s opposition to the grant of the new lease was due to the default of the tenant.

Should a Lease be Granted With or Without Security of Tenure Protection under the LTA 1954?

Shorter term commercial leases tend to be contracted out of the LTA 1954, however ultimately whether a lease is to be granted with or without security of tenure is a matter for negotiation between the parties at the Heads of Terms stage of initial lease negotiations.

Excluding a lease from the LTA 1954 provides the landlord with more control over the property as it affords them:

• discretion as to whether at the end of the lease term they wish to offer the tenant a new lease or not; and
• the ability to take back possession of the property at the end of the lease without the potential for compensation arising.

However, for business tenants security of tenure may be preferable if they intend to invest in the property and remain there long term.  During the lease the tenant’s business may grow and develop valuable goodwill, hence the ability to renew the lease at the end of the term provides stability and prevents a tenant from the costly expense of re-locating and having to find new premises.

How can WSP Solicitors Help You?

We have a dedicated commercial property team able to deal with a variety of both contentious and non-contentious landlord and tenant transactional property matters.

We can help you with:

• Lease Negotiation and Strategy: we advise landlords and tenants on their rights and obligations under the LTA 1954 and can assist in lease negotiations to protect your best interests.
• Notices: whether you are a ‘protected’ tenant and want to request a new lease or a landlord wishing to regain possession of the property under one of the statutory grounds, we can assist with drafting and service of S25 and S26 Notices.
• Compensation: if you think statutory compensation may be applicable, we can assist with advising on potential eligibility.
• Dispute Resolution: If a dispute arises between landlord and tenant regarding lease renewal, termination, or compensation, we can advise on the process and assist with negotiation – working with the parties to find an equitable solution.
• New Leases: we act for both landlords and tenants where new leases are being granted and where leases are being renewed pursuant to the LTA 1954.

Contact us today to discuss how we can assist you. Get in touch today. You can email us on contact@wspsolicitors.com or use the enquiry form on the side of the page. Alternatively, you can call us on 01453 847200.