Most people in business know of the Landlord and Tenant Act 1954. The protection afforded to commercial tenants by leases subject to this act is wide ranging. Where a commercial tenant is in occupation of commercial premises for the purposes of its business, a lease protected under the act can only be terminated on certain grounds and in accordance with strict procedures.

The act has often led to litigation, as it lays down strict time limits and procedures which have to be complied with to terminate the lease.

THE REFORM

The procedures laid down under the act have been reviewed. New rules reduce the involvement of the courts in both the granting and renewal of commercial leases, as there is no longer any need to obtain court approval for a tenant to agree to opt out of the security of tenure protection of the act. Also, the procedures relating to the termination of the lease have been amended.

THE GRANT OF THE LEASE

Prior to the introduction of the new rules, the tenant could normally renew the lease at the end of the term under the act, unless the landlord had obtained a court order before the lease started. The need for court approval was abolished by the new rules, under which the landlord must serve a “health warning” notice on the tenant. The notice must be laid down in a certain form in the rules, which notifies the tenant that he will not be able to renew the lease. The tenant must sign a declaration confirming acceptance.

RENEWALS

A tenancy which is protected under the act cannot be terminated simply by the expiry of the contractual term if the tenant is still in occupation of the premises. The landlord may terminate the tenancy by means of a notice under s.25 of the act, and the tenant has similar rights under s.26.

TERMINATION BY THE LANDLORD

The major change to the s.25 notice procedure introduced by the new rules is that the landlord must now indicate in the notice whether or not he would agree to the grant of a new tenancy.

If he agrees to a new tenancy, he must outline the main terms in the notice. If he opposes the new tenancy, he must state the grounds upon which such an opposition is based.

The time limit for serving the notice has not changed; this remains not more than 12 months nor less than six months prior to the date on which the landlord wishes to terminate the tenancy.

The early statement of the landlord’s position in relation to a new tenancy is a key consideration. This should allow the tenant the opportunity to assess its position and make a commercial decision as to whether to negotiate or simply accept the termination of the tenancy.

Landlords need to be particularly careful when exercising their rights. This is well illustrated in the 2005 case of Felber, in which a landlord who initially wanted the tenant to go because he wanted to redevelop, but subsequently changed his mind, ended up both losing his tenant and having to pay him compensation.

APPLYING TO COURT

Under the old system, an s.25 notice had to specify an end date, which signified the last date when the tenant could apply to court for a new tenancy.

There was no way to extend this deadline, so that even in circumstances where negotiations were continuing, an application had to be made and then the parties would have to apply for a stay of the proceedings.

This increased costs substantially and unnecessarily. The new rules allow the parties to agree extensions of the deadline, and are a far more cost-effective and commercial solution for tenants.

Bryn Morgan is a commercial property solicitor at Sykes Anderson LLP