“Security of Tenure” in commercial leases
Security of tenure is rooted within the Landlord and Tenant Act 1954 (the “54 Act”) and permits a tenant to remain in a business premises after the term of its lease has expired. The provisions of the 54 Act achieve this by affording the tenant an automatic right to request a new lease from their landlord on the same terms as the previous one subject to agreeing the commercial terms, such as the amount of rent.
It often comes as a surprise to landlords that security of tenure is automatically implied into a commercial lease unless the lease expressly excludes it. The procedure of excluding security of tenure, known as “contracting out”, involves the service of a specific form of notice to the tenant and the tenant signing a declaration before the lease is entered into.
If the security of tenure provisions under the 54 Act are not properly excluded, the landlord is required to grant a new lease to the tenant at the end of the previous lease’s fixed term unless one of a number of specific grounds can be shown (for example, the tenant has breached their obligations in the previous lease or the landlord intends to redevelop the premises or occupy it themselves).
A situation which commonly arises between landlords and tenants is where the fixed term of a tenancy expires but the tenant continues to occupy the premises and pay the landlord rent. The misconception is that the previous lease is simply continuing unchanged however, legally speaking, the conduct of both parties dictates that the previous lease has expired and a new periodic tenancy has begun. As explained above, the security of tenure provisions are implied unless they are excluded and so the landlord may then find themselves in a position where the tenant has inadvertently obtained security of tenure in relation to the new periodic tenancy.
To avoid this scenario, landlords should serve clear notice to quit on the tenant before the term of a lease expires and not accept any rent after the term expires. In reality, of course, it is often the case that both parties want to continue the letting and so the landlord should take care to ensure that the “contracting out” procedure is carried out again and coupled with the grant of a new lease for a further fixed term for absolute clarity.
Sam Read is a solicitor in the property department at Barker Gotelee Solicitors in Suffolk.