- February 2016
Business as usual...or is it?
Many businesses operating in this country do not own the freehold to the premises they run their business from, but rent them from a Landlord under the terms of a Commercial Lease. This arrangement provides flexibility for both the Landlord and the Tenant and also means that the business occupying the premises does not allow too much capital to be locked up in owning the premises.
Whilst the flexibility for a business to change its premises from time to time can be seen as advantageous, there are circumstances where a business can become well-established at leased premises over the years and wishes to continue with that arrangement indefinitely. In order to protect businesses falling into this category, a law was passed in 1954, the Landlord and Tenant Act 1954 (Part 2) relating to business tenancies which provided security of tenure for businesses wishing to continue occupying the premises after a current lease expired.
In fact the 1954 Act was substantially amended in 2004 by amongst other things allowing the Landlord and Tenant in a Commercial Lease to “contract out” so that the Tenant would not have security of tenure. There is a procedure in the amendment by which the Landlord must serve on the Tenant a Notice in a statutory form advising on the effects of signing a lease which does not give security of tenure. This would be mainly for the benefit of the Landlord who could recover possession at the end of the Lease period if he wished to.
One of the strengths of the 1954 Act for protecting business tenants is that towards the end of the Lease, they can apply for a new tenancy from the Landlord by serving the appropriate Notice within the statutory time limits. However the Landlord is able to serve a notice either accepting the grant of a new Lease (subject to detailed terms and rent) or object to the grant of the Lease on various grounds which could include failure of the Tenant to comply with the covenants in the Lease (such as keeping the premises in repair, payment of rent and other service charges). If the Landlord continues with its objection to grant a new Lease to the Tenant, then the Tenant can apply to the Court for the grant of a new tenancy. Pending those proceedings going through the Court, an interim position would be established to enable the Tenant to continue occupying the business premises but also continuing to be liable to pay rent.
Another ground for a Landlord opposing a new Lease under the 1954 Act is that on termination of the current Lease the Landlord intends to demolish or reconstruct the premises (or a substantial part of those premises) or to carry out substantial work of construction on the holding or part of it that he could not reasonably do without obtaining possession of the holding. This is what is known as a “no fault” objection to the granting of a new Lease. The Tenant does not have to accept such a Notice from the Landlord at face value and such a case can proceed to a Trial where the Landlord’s intention to reconstruct or demolish would be put to the test. This occurred in a recent Court of Appeal case of Hough –v- Greathall Limited . The Landlord had indicated his intention to redevelop the business premises. The Tenant did not accept that at face value and at a Court Hearing, and on Appeal, it was found that whilst the Landlord did not have the requisite “intention” at the time that it served its Notice of intention to develop the site, at the time of the Trial of the matter, the Landlord certainly had got the necessary intention to do so and could prove it on evidence. This decision indicates that Landlords do have time from serving the Notice objecting to the new Lease to put together what may be complicated redevelopment plans which they would of course need to do before the date of the Trial. For a Tenant clearly the sooner the matter comes to Trial the better if they wish to get a new Lease ordered by the Court before the Landlord has got the necessary plans together to prove its intention.
For further information please contact Paul Stevens on 01379 643555 or email
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