Is a business tenant entitled to renew its tenancy at the end of its lease?
A business tenancy will continue at the end of the term if it benefits from the protection of the Landlord & Tenant Act 1954 (“the Act”). A business tenant will have the protection of the Act if it is a tenant, occupying the premises for the purposes of a business and the operation of the Act was not specifically excluded from applying to the tenancy. If the tenant uses the premises partly for business and partly for residential purposes, the tenancy can still be governed by the Act although it will depend on whether the business use is merely incidental or whether it is more prevalent.
How does a tenant with the benefit of the Act secure a new tenancy at the end of their present term?
In order to request a new tenancy, a tenant should serve a Section 26 Notice on the landlord. That Notice shall request a new tenancy and set out the proposed terms for the new tenancy. The Section 26 Notice may request a new tenancy in any time between 6-12 months time but the date must not be before the original tenancy term date elapses. Alternatively a Landlord could decide to serve a Section 25 Notice to secure a new tenancy which has a similar function.
After one party serves a Notice, the parties then normally seek to negotiate a new lease term or do so via their appointed surveyors.
What happens if we reach the date in the Section 26 Notice for a new tenancy and one has not been agreed yet?
Prior to the date in the Notice the tenant or the landlord should either 1) make an application to Court or 2) enter into an extension agreement to extend the notice date. If either party applies to Court then the Court shall determine the terms that remain in dispute between the parties. Alternatively if the parties are continuing to negotiate and seek more time, they could agree a written extension of the date in the Notice which serves to extend the timeframe for either party to apply to Court. There can be multiple written extensions of that time-limit. This course of action is frequently pursued as it is less costly than applying to Court and parties will normally only apply to Court once negotiations have failed.
If the tenant fails to make an application to Court or agree an extension by the relevant date in the Notice, they will lose the protection of the Act. It is vital therefore to take a decision in a timely fashion to either seek an extension or prepare the claim to file with the Court.
What types of issues tend to be in dispute between the landlord and tenant on renegotiation of a tenancy?
Most frequently the term in dispute is the level of rent but it can include other terms such as length of term, number or frequency of break clauses, repair etc. In order to determine the appropriate rent, the parties’ surveyors will normally prepare valuation reports with comparative evidence of rent values for local similar premises.
What if the landlord does not wish to grant a new tenancy?
The landlord can serve Notice refusing to grant a new tenancy. In that circumstance, the landlord would need to rely upon one of the limited grounds in section 30 of the Act which set out the circumstances in which the landlord can propose not to grant a renewal tenancy. Those grounds include for example 1) ground (b) – persistent late payment of rent; 2) ground (f) – demolition or reconstruction – where the landlord proposes such works 3) (g) landlord’s intention to occupy. The Court would then have to determine if the landlord is entitled to bring the tenancy to an end. In that circumstance, the tenant may be entitled to be paid compensation by the landlord under the Act based upon the rateable value of the premises or a multiplier of the rateable value.