Business Lease Renewals

Eric Shapiro, Philip Freedman, Kevin Steele

• Publisher: Estates Gazette
• Year: 2013
• ISBN:
  9781135328658
• Edition: 1
• Topic: Jura
• Subtopic: Eigentumsrecht

Every surveyor, property manager and lawyer who deals with commercial property needs to have a thorough knowledge of Part II of the Landlord and Tenant Act 1954, which governs the rights of business tenants to obtain renewals of their leases. A maze of complex and carefully interlocking provisions, the Act was radically amended by a Regulatory Reform Order as from 1 June 2004.These changes include:
•widening the scope of protection
•removing traps for tenants such as the counter-notice
•changing the rules about court applications
•amending the basis of assessing interim rent
•imposing tougher requirements for giving information
•creating new procedures for contracting out of the Act
•a raft of new prescribed formsThis new book gives a clear explanation of the workings of the amended Act, keeping the framework in view while delving into the detail whenever needed. The old law is included for those situations where it may still be relevant. Written by a property lawyer assisted by a chartered surveyor and a property litigator, this publication, in addition to setting out the law, gives detailed guidance on practice for surveyors, managers, valuers, expert witnesses and property lawyers.

 

1.1 Legislation and regulations

The legislation on business lease renewal is principally contained in the Landlord and Tenant Act 1954, which in this book is called “the Act”. The Act stood unamended for many years before it was found necessary to add to or change any of its major provisions. It is a testimony to the high quality of draftsmanship of the Act that it still forms the basis of the law of business lease renewals in England and Wales, none of the later amendments having radically changed the way in which the Act operates.

The first main amendments to the Act were made in 1969, when “contracting out” became permitted and the concept of “interim rent” was introduced. Then, in 1990, premises with liquor licences were brought within the Act. The next major changes were not made until 2003, taking effect on 1 June 2004, when some of the procedures and time-limits were changed and some other aspects of the legislation were revised. In between there have been a few minor amendments, mainly reflecting changes in other legislation referred to in the Act.

The first few sets of amendments to the Act were made by statutes, principally the Law of Property Act 1969 and the Landlord and Tenant (Licensed Premises) Act 1990. By contrast, the 2004 amendments were effected by a new type of Parliamentary instrument called a regulatory reform order, in this case the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, which came into force on 1 June 2004.

1.2 The 2004 amendments and notices

The changes made by the regulatory reform order were subject to transitional provisions under which they do not apply to anything consequent upon a section 25 notice or section 26 request given before 1 June 2004. Because there are still lease renewals in progress which were commenced by those types of notice given before that date, both the old and the amended provisions of the Act need to be covered in this edition of this book.

In this book, the “2004 amendments” means the amendments to the Act made as from 1 June 2004 by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, and that order is referred to as “the RRO”. References to “new” versions of sections of the Act are references to the sections introduced or amended by the RRO, and “old” versions are those prior to the 2004 amendments.

The Act requires certain notices to be in a form prescribed by regulations. The current forms for use in respect of property in England or in Wales are prescribed by the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 (“the 2004 Notices Regulations”). The Welsh Assembly issued a consultation paper with a view to making an order prescribing, in respect of property which is wholly in Wales, versions of the same forms bilingual in Welsh and English, apart from the two forms which apply only to property in England. At the publication date of this book, the matter was still under consideration and it appeared likely that the use of bilingual forms would not commence before Autumn 2006.

1.3 Framework of the Act

The basic framework of Part II of the Act is that if a particular business tenancy has the protection of the Act then so long as the tenant remains in occupation of at least part of the premises carrying on a business, his tenancy will not automatically end on the expiry date of his lease. It can be ended only by following certain procedures, at which time the tenant is given the right to seek a new tenancy of those parts of the premises which he occupies (called his “holding”), at market rent, which the landlord can only refuse to grant if certain limited grounds apply. Further, compensation is payable to the tenant if the landlord successfully opposes the grant of a new tenancy on grounds other than those which involve the tenant having been in default of his obligations under his tenancy.

A tenant whose tenancy is protected by the Act (see Chapter 2) can therefore remain in possession of the premises let to him, beyond the expiry of his contractual tenancy, and his tenancy will continue (as explained in Chapter 4) until it is ended by one of the procedures mentioned in the Act (set out in Chapters 4 to 7). The grounds on which the landlord might oppose the grant to the tenant of a new lease on the termination of his tenancy are explained in Chapter 8.

Certain types of business tenancy are excluded from the protection of the Act. These are set out in Chapter 2. The main method of excluding protection when granting a tenancy is described in Chapter 3.

1.4 Procedures under the Act

The Act imposes several procedural steps to be taken by landlords and tenants. A failure to understand and observe the procedures can be highly detrimental; the landlord who fails to follow the statutory process may suffer delays in securing an increase in rent or in obtaining possession; the tenant who does so might lose his protection. Acquiring familiarity with the operation of the Act is essential for professionals advising owners and occupiers about lease termination and renewal.

These essential procedures are explained fully in Chapters 5 to 10. Essentially, if the landlord gives the tenant a termination notice under the Act but the tenant wishes to remain in possession beyond the expiry of that notice, he must either reach agreement with the landlord for a new tenancy (as explained in Chapter 13) or ensure that an application to the court is made before the specified termination date unless an extension of that date is agreed in writing with the landlord for this purpose (discussed in Chapter 10).

The special considerations in relation to premises which the tenant has sublet are discussed in Chapter 9.

If he complies with the statutory procedures, the tenant will be entitled to be granted a new tenancy on his holding, unless the landlord successfully opposes the grant of a new tenancy on one or more of the grounds listed in the Act. These grounds are explained in Chapter 8.

If the landlord does not oppose the grant of a new tenancy, or attempts to oppose it but fails to establish one or more of the grounds listed in the Act, the tenancy to which the tenant is entitled to be granted is to be on terms to be agreed between the tenant and the landlord. If agreement on any aspect cannot be reached, the disputed terms will be fixed by the court in accordance with guidelines set out in the Act, as described in Chapter 12. The court process itself is described in Chapter 10.

It is possible for the parties to agree that they will refer one or more matters to an arbitrator or expert instead of the court, but certain court processes may still be necessary, as explained in Chapter 10.

If the landlord successfully opposes the grant of a new tenancy on one or more of the grounds under the Act, the tenant must vacate the property by a date ascertained under the provisions of the Act, considered in Chapter 10. In some cases the tenant will be entitled to claim compensation from the landlord, as set out in Chapters 14 and 15.

If the tenant does not want to claim a new tenancy, he can vacate by the end date of his lease as discussed in Chapter 3. He can, but need not, give three months' notice to the landlord. He may do this either voluntarily or when he receives a termination notice under the Act. If he simply vacates, the landlord may not know that the tenancy will not be continued.

Even if he applies for a new tenancy, the tenant can change his mind. The Act permits him to give three months' notice to end his tenancy at any time if he is simply holding over after the expiry of his lease. If an application to the court is made regarding a new tenancy, the tenant may at any time stop the court application and his tenancy will end three months later. Even if the court process is followed and the court makes an order for the granting of a new tenancy, the tenant may have the order cancelled within 14 days of its being made, with the tenancy ending three months later. In some of these cases the tenant may be exposed to a claim for costs from the landlord.

Interim rent, which may be payable by the tenant for the period while a tenancy is being temporarily continued under the Act, is considered in Chapter 11.

1.5 Importance of defined words and phrases

A glossary of words and phrases appears towards the end of this book. The Act contains many defined terms which need to be understood in order to follow the way in which the Act operates. For example, that part of the premises let to the tenant which the tenant actually occupies is called the “holding”; the person who is the “landlord” may, in certain circumstances which the Act specifies, be in fact a superior landlord rather than the tenant's immediate landlord; and it is necessary to understand the distinction between the contractual term expressly created by a lease or tenancy agreement and the “tenancy” that it creates.

The glossary sets out the most often used defined words and phrases and their meanings. These special meanings should always be remembered whenever those words or phrases appear.

As stated above, in this book “the Act” means the Landlord and Tenant Act 1954; all references to sections and schedules without mentioning the particular statute are references to sections or schedules of the Act.

1.6 Use of casenotes

Short summaries of reported court cases have been included in certain sections of the book, to illustrate some of the more complicated issues that arise under the Act.

There have been literally hundreds of reported cases on the Act and choosing those to summarise here has involved a difficult selection process. Generally, the casenotes concentrate on decisions of the Court of Appeal or House of Lords, since these are authoritative as precedent in English law. Decisions in the High Court at first instance, and decisions of county courts, are not generally binding precedent and are only cited where they carry the weight of many years authority or illustrate a novel point.

New cases on the Act are reported every few months and no legal book can remain up-to-date on every point for very long. If a serious issue arises under a particular provision of the Act, it is advisable to obtain specialist legal advice and for the legal adviser to carry out research into all the relevant case law. The Estates Gazette, including its EGi on-line service, is a good source of specialist property law reporting, in addition to the official law reports and those of other legal publishers.

1.7 Stamp duty land tax

The chapters dealing with continuation tenancies, interim rent and the grant of the new lease include some brief guidance on the tenant's potential liability to pay stamp duty land tax (SDLT).

SDLT is a new tax on property transactions and it replaced stamp duty as from 1 December 2003. It is still in its infancy and subject to frequent amendment, so several aspects of its operation are somewhat uncertain and the guidance set out in this book is inevitably tentative in some respects. Specialist advice should be taken whenever this may be an issue.

2.1 Overview of main rules

For the protection given by the Act to apply, the criteria contained in section 23 must be present. In that section, subsection (1) states:

Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried...