If you are a commercial tenant or landlord in England and Wales, you may be familiar with the Landlord and Tenant Act 1954, which governs the rights and obligations of both parties in relation to lease renewals. In this article, we will look at some of the things you should consider when dealing with lease renewals that are subject to the Landlord and Tenant Act 1954 so you can manage them effectively and confidently.

If a commercial lease is subject to the protection of Part II of the Landlord and Tenant Act 1954 (‘1954 Act’), the tenant enjoys what is called ‘security of tenure’. This means the tenant is able remain in the property and has a statutory right to seek a new lease at the end of the contractual term.

1. Check if the lease is inside the 1954 Act

If the lease is outside the 1954 Act, it will usually be expressly stated within the lease. If the lease does not expressly exclude the provisions of the 1954 Act, and the tenancy satisfies the qualifying criteria for a lease renewal, it will be inside the 1954 Act. To satisfy the qualifying criteria, a tenant must be in occupation of the property at the end of the contractual term and the occupation must be for the purpose of a business being carried on by the tenant.

There are specific exclusions to the above, we therefore recommend that you seek legal advice on whether your tenancy qualifies for a renewal.

2. Identify the competent landlord

To initiate a renewal, a landlord can serve a Section 25 Notice, or a tenant can serve a Section 26 Request (‘1954 Act Notice’).

A 1954 Act Notice must be served on or by the competent landlord. Should it become necessary to issue an application to the court for a new tenancy, the proceedings will also need to be issued by or against the competent landlord. Pursuant to s44 of the 1954 Act, the competent landlord is the party who has either a freehold interest or a leasehold interest that will not come to an end within 14 months by effluxion of time and no notice has been given that will terminate that tenancy within 14 months.

To identify the competent landlord, it is vital that appropriate searches are carried out at the Land Registry prior to serving or acknowledging a 1954 Act Notice or issuing a court application for a new tenancy, because the competent landlord often changes throughout a tenancy.

3. Understand the registration gap

When the freehold interest of a property is sold, the transfer will be registered at the Land Registry. Until such time as the transfer is registered, there is a “registration gap” and the seller remains the legal owner of the property and the competent landlord for the purposes of the 1954 Act. The buyer is considered an equitable owner only.

Once the transfer has been successfully registered, the legal estate vests in the buyer effective from the date that the application for registration was made at the Land Registry. It is important to note, however, that this does not retrospectively validate a 1954 Act Notice if, at the time it was served, was invalid because it was not served on or by the legal owner of the property.

4. Know when can you initiate a renewal

You cannot specify a termination date in a Section 25 Notice or Section 26 Request which is before contractual expiry of the lease and you cannot provide more than 12 months, nor less than 6 months’ notice before the date which is specified.

A notice can therefore be served up to 12 months before contractual expiry of the lease (so long as the termination date specified is after contractual expiry) and at any time after contractual expiry so long as the requisite notice is given.

5. Serve the correct forms of notice which comply with the 1954 Act

The 1954 Act requires that the prescribed forms of notice be given, it is therefore essential that all required elements of the 1954 Act Notice are included to avoid it being deemed invalid.

6. Understand how to oppose a renewal

If you are a landlord who wishes to oppose a tenant’s renewal, you can do so by serving an opposed Section 25 Notice and stating the statutory grounds on which you wish to oppose. The relevant grounds are contained in s30 of the 1954 Act.

Following service of a Section 26 Request by a tenant, you can still oppose the renewal by serving a counter-notice within two months of service of the Section 26 Request. It is essential that you seek legal advice as soon as a Section 26 Request is received given the implications of not serving a counter-notice in time.

7. Know your rights

If you are a tenant and a landlord has opposed your renewal on one of the no-fault grounds (ground (e), (f) and (g)) you are entitled to statutory compensation upon quitting the property.

Compensation is calculated by applying a multiplier to the rateable value of the property. The compensation will be doubled if you and any predecessor has been in occupation of the property for the purpose of the same business for 14 years or more.

8. Time your negotiations well

Negotiations for a new tenancy can begin at any time - service of a 1954 Act Notice will not affect your ability to negotiate with the other party. One reason you may consider starting negotiations early when renewing a lease under the 1954 Act is that the statutory process can be lengthy and complex, and may involve several steps and deadlines that both parties need to comply with. It is important to research the local commercial market to gain an understanding of current market conditions. An expert surveyor would be able to assist you in determining appropriate terms.

9. Know your deadlines

Once a 1954 Act Notice has been served, the tenancy will end on the termination date. The termination date will either be the date specified in the Section 25 Notice or the day before the date specified in the Section 26 Request. If the renewal lease has not completed by the termination date, the tenant will lose its statutory right to a new lease.

It is therefore essential that by the termination date, an application is made to the court for the grant of a new tenancy, or the parties agree in writing to extend the date for making an application to the court.

10. Understand what will happen if you cannot agree terms

In the absence of an agreement between the parties, the court will determine the terms of the new tenancy in line with the 1954 Act.

The duration of the new tenancy will be determined under s33 of the LTA 1954 to be what is reasonable in all the circumstances and not exceeding fifteen years. The rent will be determined under s34 of the LTA 1954 in line with what the property might reasonably be expected to be let in the open market. The other terms will be determined under s35 of the LTA 1954 and will usually be in line with the terms of the current tenancy subject to amendment to reflect all relevant current circumstances.

In conclusion…

Commercial lease renewals form a vital part of the property market here in England and Wales, but they can also be complex and challenging. Those managing lease renewals need to be well-prepared and proactive to ensure the best possible outcome.

To ensure you navigate your lease renewal successfully, you can call on the experience of our Property Litigation team who have supported tens of thousands of lease renewals for clients nationwide over many years.

Get in touch with the author, Lauren Casey, on 01482 324252 or via email, lauren_casey@gosschalks.co.uk