Commercial Leases – Can They Be Automatically Renewed?

A Landlord and Tenant may have entered into an arrangement for the leasing of a property for a fixed period of time, but both parties should be aware from the outset that the Landlord and Tenant Act 1954 (“LTA 1954”) provides for the lease to potentially be renewed at the end of the contractual term.

In order to ascertain whether a Tenant will benefit from the statutory protection of the LTA 1954 for renewal of the lease, the Tenant must satisfy the five conditions set out in section 23 of the LTA 1954, as follows:

     1. There must be a ‘tenancy’

A ‘tenancy’ includes a lease, an underlease or a periodic tenancy, and does not necessarily have to be in writing (unless, for example, it is required to be in writing by statute). However, neither a simple licence to occupy a property nor a tenancy at will would fall within the definition of a tenancy and so cannot benefit from security of tenure.

     2. The tenancy must relate to ‘premises’

‘Premises’ can include open land as well as buildings. In effect, it is any land that is capable of being occupied.

     3. The premises must be occupied for the purpose of a business

Firstly, there must be an occupation (or at least an intention to occupy) on the contractual expiry date of the tenancy. Therefore, if a Tenant underlets any part of the premises it will not be able to request a new tenancy of the underlet part of the premises as it will not technically have been ‘occupying’ it.

Secondly, the occupation must be for the purpose of a business, with the landlord’s acquiescence. A ‘business’ is widely defined to include any trade, profession or employment.  It would also include a not-for-profit organisation or a members’ club which only trades within its own membership.  It should be noted that the Tenant’s actual business does not itself need to be carried out at the premises, as long as the premises are occupied in order to further the Tenant’s business.

     4. The business must be carried on by the Tenant

This will usually be easily established, although it can also include business carried out vicariously. It includes situations where the business is carried out by a manager employed by the Tenant, by a company in which the Tenant has a controlling interest, or by a member of a group of companies which is in the same group as the Tenant.

     5.  The tenancy must not fall within one of the specific statutory exclusions

This will usually be easily established, although it can also include business carried out vicariously. It includes situations where the business is carried out by a manager employed by the Tenant, by a company in which the Tenant has a controlling interest, or by a member of a group of companies which is in the same group as the Tenant.

The criteria set out above for a tenancy to qualify for protection under the LTA 1954 are relatively broad and most commercial leases are therefore likely to automatically fall within the scope of the Act. Once such a lease has been entered into, a prescribed procedure would usually need to be followed to bring the lease to an end.  Although it is possible to exclude the security of tenure provisions of the LTA 1954 from a tenancy before it is entered into, it is not possible to unilaterally do so once the lease is in place.  It is imperative that all parties consider whether they wish to incorporate security of tenure for the Tenant within the lease at an early stage to ensure that this issue is properly considered and dealt with.

For further information and advice on security of tenure, or for any other commercial property related enquiry you may have, contact our Commercial Property solicitors on 0800 689 0831 or make an enquiry here.  You can also contact solicitor Mohassan Mehmood on 0333 207 1161 or via email on Mohassan.Mehmood@forbessolicitors.co.uk.

 

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