When do business occupiers have the right to renew their lease?

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The Landlord and Tenant Act 1954 (“the Act”) is an important piece of legislation that provides rights
and protection to business tenants.

Part II of the Act gives business tenants who occupy premises for business purposes “security of tenure”, which is of fundamental importance to both landlords and tenants in terms of their initial lease negotiations and the actions that they need to take upon lease renewal.

What is meant by the term “security of tenure”?
A business tenancy does not automatically come to an end at the end of the fixed term of the lease. Instead the tenancy continues until it is brought to an end in one of the ways set out in the Act.

Even if your lease is not granted for a fixed term, but is instead what is known as a periodic tenancy, for example a monthly tenancy, then it still cannot be terminated until brought to an end as prescribed by the Act.

When the tenancy is brought to an end the tenant can then apply to the Court for a new tenancy which can only be opposed by the landlord on the grounds laid down under the Act.

There are three key requirements for the Act to apply:
First: There must be a business tenancy

Essentially tenants occupying premises for the purposes of a business have the right to renew, but some business occupiers do not have this right. For example, the following do NOT have a right of renewal:

  • Farm business tenants
  • Service tenants employed by the landlord
  • Where there is a licence and not a lease
  • Tenancies at will
  • Fixed term tenancies not exceeding six months (but these can be protected tenancies if the tenancy
    contains a term enabling the tenant to extend the term beyond six months) – there are also certain
    occupation rights that can apply.
  • Contracted Out Tenancies (see below)
  • Tenants who have sub-let the premises and who are not occupying them personally or through a
    manager

The above list is not exhaustive and it is recommended that you seek legal advice to check the position in each case.

Second: The Tenancy must be occupied by the Tenant

Occupation can be by the tenant personally, through a company owned by the tenant or by a manager on behalf of the tenant.

Occupation by a sub-tenant is not acceptable and protection will be lost in whole or part depending upon the extent of the sub-let.

Third: The Tenancy must be occupied for business purposes

Business purposes includes any trade, profession or employment and any activity carried on by a body of persons; this does not have to be a commercial activity and can include club premises such as a tennis club, institutions such as a hospital or other bodies such as trade unions.

Business purposes also include mixed use premises, such as a shop with a flat above provided that the business purpose is the main purpose. It would not apply if the business use was incidental to another use.

The Act protects all of the premises comprised in the tenancy, even if the tenant only occupies part of them for business purposes.

Can a Landlord exclude the Tenant’s right to renew under the Act?

A landlord can only exclude the tenant’s security of tenure under the Act at the time when a fixed term lease is granted, if the parties agree to the creation of what is known as a “contracted out” tenancy.

Before accepting a contracted out tenancy it is extremely important for a tenant to understand fully what this means. For this reason, no tenant is permitted to enter into such a lease, unless they have received a written warning notice from the landlord in advance of entering into the lease. They then have to make either a declaration or (depending upon time of service) a statutory declaration in front of an independent solicitor to confirm that they have read the notice and accepted its consequences.

No contracting out is permitted unless the tenancy is granted for a fixed term and nor is it possible to exclude security of tenure after a lease has been granted.

Where a tenant is taking an assignment or transfer of an existing lease it is also important to check whether or not it is a contracted out tenancy, as this will determine whether there will be a right of renewal at the end of the lease term.

For further guidance in dealing with lease transfers and all commercial property matters, please contact our Commercial Property Solicitor, Susan Poole on:
033 3344 9600 or email susan.poole@morrishsolicitors.com

This Fact Sheet is for information only and is not intended to be a substitute for legal advice.

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