In England and Wales the Landlord and Tenant Act 1954 (the LTA 54) generally applies by default, that is to say automatically, to most commercial leases. Provided certain conditions are met the tenant is protected by the LTA 1954 in the following ways:
(a) The LTA 54 provides a mechanism for ending a lease which must be followed to be effective.
(b) Unless the correct method to end a lease is followed, it will continue to run automatically.
(c) It gives the tenant the right to apply for a new lease when their existing lease expires.
(d) If the landlord wants to object to the tenant's application for a new lease, then he has to establish certain grounds, which are set out in the LTA 54.
(e) If the tenant has to leave their premises, the landlord may have to pay them compensation.
The LTA 54 does not apply in the following circumstances:
- A license
- A lease that is not for business purposes
- A tenancy at will (where both parties have clearly agreed to arrangement can be terminated at Will, that is to say immediately by either party)
- A lease of an agricultural holding
- Leases granted for employment purposes
- A lease fixed for a term of 6 months or less, provided it contains no rights to renew or extend (a series of short fixed-terms become protected lease by the Act where the tenant, including any predecessor in the same business, has been in occupation for over 12 months)
- A lease which has been “contracted-out” of the LTA 54. From 1 June 2004 the landlord must give the tenant a specific type of notice and the tenant has to make a declaration that they have received such a notice, known as “health warnings”. The notices MUST be in the prescribed form set out by the regulations, by contracting out of the Act, the tenant agrees the following:
- He/she will have no right to stay in the premises when the lease end
- He/she will have no right to renew the lease; and
- He/she will have no right to compensation which is sometimes payable if the landlord takes the premises back
If the LTA 54 applies:
- The landlord can instigate renewal via a s25 notice, which must be between 6-12 months long
- The tenant can instigate renewal via a s26 notice between 6-12 months long but only if the lease is or was for a fixed term
- The landlord or tenant can propose the new lease. There is then 6-12 months to negotiate the terms before notice expires
- If a new lease is not agreed before expiry of notice tenant must apply to court or get extension of time in writing from landlord. Failure to do so cause the tenant to lose their rights under the LTA 54
- If necessary the court will decide the new terms including the new rent. The starting point will be the terms of the old lease
The landlord can object to renewal on the following grounds, set out in the LTA 54:
- Ground A – Failure to repair
- Ground B – Persistent delay in paying the rent
- Ground C – Substantial other breaches
- Ground D – Alternative accommodation
- Ground E – Lettings as a whole
- Ground F – Building works
- Ground G – The landlord's own occupation
If the tenant has to leave under grounds E-G, then they are entitled to compensation linked to the rateable value. These are often referred to as no fault grounds.
A recent case in the High Court (HC) looked at a tenant’s (T) claim for compensation under LTA 54, on the basis the landlord (L) had mispresented/lied about their intentions with regard to the premises in question.
T had served a notice on L under section 26 of the LTA 54 requesting a new tenancy (renewal) in relation to the relevant premises. L had opposed this on the basis that it intended to occupy the premises for the purpose of running its own business (Ground G), and as a result of this objection, successfully obtained an order terminating T's lease (Termination Order) at the original hearing in the County Court (CC).
The CC had accepted that L had a firm and settled intention to open a Japanese restaurant (called Zen Bento) and a reasonable prospect of achieving its intention within a reasonable time following termination of T's lease. L had given the CC an undertaking (a legally binding promise) to commence trading as Zen Bento as soon as reasonably practicable after getting the property back from T. However, it transpired that L did not open Zen Bento by the specified date and instead opened a different restaurant and bakery at the premises.
T sued L in deceit and for damages under the LTA 54 claiming that the Termination Order was obtained by misrepresentation. The HC found that L had specifically stated that it intended to occupy the premises specifically to operate Zen Bento. However, it was clear from subsequent emails that L had not in fact decided what business to operate from the premises and had therefore misled the CC as to its intention when it gave its evidence and undertaking and obtained the Termination Order.
Where the relevant misrepresentation had been made by L to a third party (the CC), intending it to be communicated to T and the misrepresentation being so communicated to, and relied on by T, was actionable in deceit. The HC L was liable to pay compensation to T pursuant to the LTA 1954, with the amount to be determined at a subsequent trial.
We have a suite of factsheets and precedents on all aspects of the law relating to business leases available on the FSB Legal Hub