Lease Termination and Security of Tenure under a Business Lease Flashcards
(24 cards)
In what ways can leases be terminated at common law (when the tenant is not in breach of their covenants)? Give details of each method.
1) Effluxion of time
- Fixed term leases automatically end when the contractual term ends
- No notice required
2) Notice to quit
- Periodic tenancies can end by LL or T giving the appropriate period’s notice (one month notice for a monthly periodic tenancy)
- A yearly periodic tenancy can end by giving 6 months’ notice
- Notice must expire at the end of a completed month
- Notice for a monthly periodic tenancy given on 14th August would expire on 30th September
3) Surrender
- T yields the lease to LL who accepts the surrender – both sides must agree to it
- Lease merges with reversion and is extinguished
- Surrender must be by deed to be legal
4) Merger
- T acquires the immediate reversion to the lease (acquires the LL’s estate in land)
- Opposite of surrender
- Can also occur where 3rd party acquires the lease and reversion together (on assignment of lease and sale of freehold interest)
What does Part II of the Landlord and Tenant Act 1954 apply to?
Act applies to ‘any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes’
- Can be occupied personally or through an agent
- Business is widely defined and includes trades, profession or employment or activity by a body of persons (tennis club and hospital both suffice)
What types of business tenancy will not be protected by the LTA 1954?
1) Tenancies at will
2) Fixed terms not exceeding 6 months
- Granting a 6-month lease with an option to extend once 6 months have passed will be protected
3) Farm businesses, mining leases not included
4) Fixed term tenancies where parties contract out of the Act by following a statutory notice procedure
- LL gives T notice that they want to offer a lease without security of tenure
- T must then make a declaration agreeing (must be made in the form of statutory declaration before an independent solicitor if notice received less than 14 days before grant of lease)
What is the effect of a lease having ‘security of tenure’ under the LTA 1954?
Leases which enjoy statutory protections (security of tenure) can only be terminated in prescribed ways and T can renew or extend them
- The common law methods of termination might not apply
Tenancy will continue until terminated in accordance with the Act and then T can apply to court for a new tenancy which can only be opposed on one of 7 statutory grounds (s30 grounds)
What are the 7 methods of termination provided for in the LTA 1954?
1) by the service of a landlord’s notice under s25
2) by the service of a tenant’s request for a new tenancy under s26
3) forfeiture (T in default)
4) surrender (LL and T agree to end tenancy)
5) in the case of a periodic tenancy, by T giving LL a notice to quit (LL cannot serve notice to quit on T)
6) in the case of a fixed-term lease, by the tenant serving three months’ written notice on the landlord under s 27, so long as the notice does not expire before the contractual expiry date (LL cannot serve notice on T)
7) in the case of a fixed-term lease, by the tenant ceasing to be in occupation for business purposes at the end of the lease under s 27(1A).
- Forfeiture and surrender are the most common and they are the only common law methods available to LL
- If no grounds for forfeiture and T won’t agree to surrender, L can only end business tenancy via s25 notice
What is the process for termination of a tenancy via s25 notice?
S25 can be used to terminate a fixed or periodic tenancy
Process:
1) LL must serve a s25 notice on T (need to know section/term)
- They can either state if they want the property back or want to grant a new lease (usually with a higher rent)
- If LL opposes the renewal of the tenancy, the s25 notice must state the s30 grounds
2) s25 notice must state the date that the LL wants the tenancy to end, which cannot be before it could have been terminated under the common law (ie no earlier than expiry of a fixed term)
3) s25 notice must be served no less than 6 months and no more than 12 months before the termination date specified in the notice
- If LL does not serve the notice to coincide with the contractual expiry date, the tenancy continues
Give an example of when a s25 notice would need to served to be effective
Lease expires on 29th September 2023
LL can serve notice between 29th September 2022 (12 months before) and 29th March 2023 (6 months before)
If they wish to serve notice in June 2023, the earliest termination date would therefore be December 2023 (6 months) and the latest termination date would be June 2024 (12 months) - LL can specify any date within that span
When will the tenant need to apply to court in response to a s25 notice?
1) If LL indicates in s25 notice that they will oppose the grant of a new tenancy, T must apply to court before the notice expires, or they will lose their 1954 Act rights
- LL can apply to court before T, requesting termination on the s30 grounds they stated in the s25 notice
2) If LL does not oppose the grant of a new tenancy, T should apply within the time limit to safeguard their position, although the parties will negotiate the terms of the grant of the new lease
- Parties can agree an extension to the date
Give a summary of the tenant’s options on receipt to a s25 notice
1) If T does not wish to renew, they should vacate by the s25 termination date
2) If T wishes to renew and s25 notice opposes the renewal, consider:
a) Has LL applied for a court order to terminate the lease
- If yes, court will determine the issue
- If no, T should apply for a new lease by the relevant date + court will determine the issue
3) If T wishes to renew and s25 does not oppose a renewal
a) Consider if a new lease will be agreed by the s25 termination date or any agreed extension
- If yes, no further action needed, if the new lease is completed in time
- If no, T should apply for a new lease by the relevant date + court will determine the issue
From the tenant’s point of view, what are their various options if they want to terminate the tenancy or remain after the term?
1) If a protected T wants to terminate on the contractual expiry date
- They can cease to occupy
- They can serve a s27 notice giving the LL 3 months prior written notice
2) If a protected T wants to terminate after the contractual expiry date
- They can serve a s27 notice giving the LL 3 months prior written notice
- They can agree a voluntary surrender of the lease with LL
3) If a protected T wants to remain in the property after the contractual expiry date
- They can do nothing; tenancy will continue until LL serves s25 notice
- They can serve a s26 request (need to know section/term)
What is a s26 request?
A s26 request brings the current tenancy to an end + acts as a request for a new tenancy
- Must state the date on which T wants the new tenancy to begin + their proposals for the new tenancy
- Same time limits as a LL serving s25 notice, so T must give LL between 6- and 12-months’ notice of the date they want the new tenancy to start, which cannot be earlier than the earliest common law termination date
When will an application to the court be necessary following a s26 request?
1) If LL opposes grant of new tenancy, they must serve a counter-notice on T within 2 months of service of s26 request
- This notice must state their s30 grounds of opposition
- T must then apply to court for a new lease or lose their 1954 Act rights + must apply before commencement date of new tenancy specified in s26 request (unless LL agrees extension)
- LL can apply to court for an order to terminate lease on s30 grounds before T makes theirs
2) If LL does not oppose grant of new tenancy, the parties negotiate
- T should still apply to court before commencement of new tenancy to safeguard their position
- Parties can agree an extension to this date
Give a summary of the landlord’s options on receipt of a s26 request
1) Does LL wish to oppose grant?
- If yes, LL serves counternotice within 2 months
- If no, parties can negotiate terms of the new lease
2) In either case, consider if T has applied to court prior to date in s26 notice:
a) If yes, the court will determine the issue
b) If no:
i) Has the relevant date arrived?
- If yes, T has lost the right to renew and must vacate
- If no, LL can apply for an order to terminate the lease + court will determine the issue
When will the landlord need to state their s30 grounds of opposition?
If LL opposes the renewal of the tenancy, its s25 notice or counter notice to s26 request must state which of the seven s30 grounds applies for it to oppose (need to know section/term)
What are the seven s30 grounds?
The seven s30 grounds are:
- (a) Tenant’s failure to repair
- (b) Tenant’s persistent delay in paying rent
- (c) Tenant’s substantial breach of other obligations
- (d) Landlord has offered alternative accommodation (which must be suitable to the tenant’s needs and on reasonable terms)
- (e) Tenancy is an underletting of part (rarely used)
- (f) Landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession
- (g) Landlord intends to occupy the holding for its own business or as a residence
Which of the s30 grounds are discretionary?
Grounds (a), (b), (c) and (e) are discretionary
- LL must show ground exists; and
- LL must also show T should not be granted a new tenancy in view of the facts giving rise to the ground
There will be a court hearing with evidence and advocate submissions
Which of the s30 grounds are mandatory?
Grounds (d), (f) and (g) are mandatory
- If LL can establish the ground exists, that is enough
Which of the s30 grounds is used most frequently? Give more details on this
Ground f is the most frequent. LL must show that, on termination of tenancy:
1) It has a firm and settled intention to carry out works
- Will likely need planning permission and finance in place
2) It intends to demolish or reconstruct the premises or carry out substantial works of construction
3) It cannot reasonably carry out the work without obtaining permission
- If they can do the work with T’s consent and without substantially interfering with T’s use, they will fail
When will ground (g) not work?
Ground (g) will not work unless LL has owned their interest for at least 5 years before the ending of the current tenancy/termination date specified in the s25 notice
- Exception is if LL bought it with vacant possession, let it and seeks possession within a 5-year period
Example – if A has owned the interest for 4 and a half years, and wants to end the tenancy in 6 months’ time, they can use ground (g), because they will have owned the interest for 5 years by the termination date specified in the s25 notice
If the court decides on the terms of a new lease, what might be included?
Even if T has underlet parts of the property, when granting a new lease, LL has a right to insist that a new tenancy is for the whole of the originally demised property, including the underlet parts
New term of lease cannot exceed 15 years
New lease will commence 3 months and 4 weeks after the order (4 weeks allows time for appeal)
New rent is open market rent
- Court will disregard any goodwill attached to the building and the effect of T’s voluntary improvements
Court can insert a rent review clause
In the absence of agreement, other terms will be fixed by the court
- New terms are often like the old tenancy’s
What are the tenant and landlord’s options if they are unhappy with the terms of the lease that the court has included?
If T finds the new lease’s terms unacceptable, it can apply to court to revoke the order
LL can only appeal if unhappy
When will the tenant be entitled to compensation if the lease is terminated and no new lease granted?
If LL successfully opposes the grant of a new lease solely on grounds (e), (f) or (g) (the no fault grounds), T will be entitled to compensation
- Amount is equivalent to the rateable value of the holding
- Unless T and predecessors in same business have been in occupation for at least 14 years = twice the rateable value
LL and T may have agreed to restrict payment of compensation
- These agreements are void if T and predecessors in same business have been in occupation for 5 years or more
When will compensation not be payable?
If one of the non-discretionary grounds (a-d) is successfully argued alongside one of the discretionary grounds (e-g), then no compensation is payable
What is meant by the rateable value of the holding in relation to compensation following a successful opposal under s30 grounds (e)-(g)?
Lower rate = rateable value of property – years’ worth of rent at that year’s value (on no fault grounds, for leases of less than 14 years)
Higher rate = double rateable value of property – 2 years’ worth of rent at that year’s value
- Higher rate applies if T and any predecessors have occupied for 14 years or above
- If the client has purchased the lease and the existing business which the predecessor had
- Must be the same type of business, even if T2 has only been there for a few years
- If T2 purchased a bookshop and made it a flower shop, the lower rate would apply
