Section 25 Notices

Section 25 lease termination or renewal solicitors

Section 25 notices signify the start of a commercial lease renewal or termination and thus carry a lot of weight. Our experienced solicitors provide straight-talking advice for landlords and tenants, ensuring that you are fully informed and protected throughout the process.

What is a section 25 notice?

Most commercial leases have security of tenure. This means the lease does not terminate when the contractual term ends. Instead, the tenancy continues, on the same terms, until either the landlord or tenant terminates the lease using one of the methods set out in the Landlord and Tenant Act 1954.

Section 25 notices are a key part of this process. Served by the landlord on the tenant, a section 25 notice kickstarts negotiations for a lease renewal or starts the legal process for taking back possession of the property.

What are the two types of section 25 notice?

There are two types of section 25 notice: friendly and hostile.

Friendly section 25 notice

A friendly notice ends the current tenancy but indicates that the landlord is willing to offer a new one. This notice explains the conditions the landlord wants, like the rent amount, lease duration and how rent will be reviewed.

Often, the landlord and tenant will have discussed and agreed the terms of the commercial lease renewal before the section 25 notice is served. The landlord will serve a friendly notice to confirm these terms and officially start the renewal process.

Hostile section 25 notice

A hostile notice is served when the landlord does not want to renew the lease. Landlords can oppose a lease renewal on the basis of one of seven grounds set out in the Landlord and Tenant Act 1954, and the section 25 notice must clearly state this reason. The seven grounds are:

(a) Failure to repair.

(b) Persistent rent arrears.

(c) Other substantial breaches of lease by the tenant.

(d) Landlord offers suitable alternative accommodation.

(e) The tenant has a sub-lease of part and the landlord believes that it can let the whole premises for more than the parts.

(f) Landlord intends to demolish or reconstruct the property.

(g) Landlord intends to occupy the property itself.

Grounds (f) and (g) are mandatory. This means that if the landlord can prove them with evidence, the court must refuse a new lease.

The other grounds are discretionary. Even if the landlord proves them in court, the court can still choose to grant a new lease if it is fair and reasonable to do so.

Each of these grounds has its own complexities. For example, a ground (f) claim has two separate proof points: a subjective intention to redevelop, which is usually proven by architect’s plans, building contracts and board minutes, and a reasonable probability of the intended works actually being carried out, meaning there aren’t any planning or financing obstacles in the way.

In other words, the landlord’s plans have to be realistic and well thought out.

From a practical perspective, many disputes regarding hostile section 25 notices can be avoided by getting the various pieces of evidence in place at an early stage. Our property litigation solicitors are on hand to guide you through this process and help ensure your best chances of success.

What is included in a section 25 notice?

The section 25 notice follows a prescribed form and must include certain information, including: names and addresses of the parties, property description, the date on which the current tenancy will end, grounds for opposition (if the landlord opposes the renewal), or the terms of the renewal (if it’s a friendly notice).

Some of these elements are quite technical. For example, the minimum notice period that a section 25 notice can give is six months and the maximum is 12 months. If the commercial lease is approaching its end date, these timelines must be considered very carefully if the landlord wants the termination date to coincide with the end date of the lease.

How do you serve a section 25 notice?

Only the landlord or its authorised agent can serve a section 25 notice. The authorised agent is usually a solicitor or property management company appointed by the landlord to handle lease-related matters on its behalf.

Additionally, the notice must be served following the specific provisions of the lease or according to statutory rules, if the lease is silent on the matter. This could include recorded delivery or serving it through a professional process server.

The notice will not be valid if it is served incorrectly. It’s extremely important to seek legal advice from an expert commercial property litigation solicitor before drafting or serving a section 25 notice.

What happens after a section 25 notice is served?

Serving a friendly notice triggers a negotiation period between the landlord and tenant in relation to the terms of the renewal lease.

The parties have to negotiate in good faith, using evidence such as market rent valuations to narrow the gap between them—this is a pre-condition for starting court proceedings.

If, despite best efforts, the parties can’t agree, the matter can go to court where a judge will decide on the terms of the new lease. There are several non-court procedures, including arbitration and expert determination, that can be used instead and may be faster and cheaper than going to court.

For tenants, the most critical action is to keep track of the termination date in the section 25 notice.

The effect of the section 25 notice is that the lease comes to an end on this deadline. The parties must do one of three things by that date: complete a new lease, extend the deadline in writing, or apply to the court. If they fail to do any of these, the tenant may lose the legal right to a new lease.

Statutory compensation under the 1954 Act

Tenants facing a hostile section 25 notice basically have to decide whether they want to stay or go.

One important tool in this decision-making process is the right to receive compensation. By law, landlords must pay compensation whenever the lease is ended using no-fault grounds (e), (f) or (g). Compensation is the rateable value of the property or, where the tenant has been in occupation for 14 years or more, twice the rateable value.

Compensation becomes due when the tenant vacates.

Leases sometimes include clauses excluding the right to compensation. A clause like this will not be effective if the tenant has been in occupation of the property for the last 5 years before they vacate. It’s important to be aware of your statutory right to compensation under the 1954 Act—especially if the section 25 notice is served around the time of a rate revaluation.

Our solicitors can help you understand your position in order to maximise the compensation you receive.

What is interim rent?

After serving a section 25 notice, either party can apply to the court for interim rent. Interim rent is a provisional amount of rent that may be ordered by the court while the parties negotiate the new lease. It covers the period between the expiration of the contractual term of the old lease and the date the new lease is entered into.

In most cases, interim rent will be calculated based on new lease rent. This means there may be a commercial advantage to making an interim rent application depending on whether the market is rising or falling. Our solicitors can help you assess market trends and timings and make a choice.

How our property litigation team can help

There is a lot riding on the service of a Section 25 notice and it’s important to get it right. Our expert commercial property solicitors can assist landlords and tenants from the earliest stage to ensure you consider the options fully. Our services include:

• Drafting and serving section 25 notices (both friendly and hostile).
• Advising on the grounds to oppose a lease renewal and compiling evidence to support the claim.
• Making interim rent applications.
• Representing you in litigation or alternative dispute resolution processes.
• Negotiating terms for a new lease, including rent and other key clauses.
• Advising on your statutory right to compensation under the 1954 Act.

To speak to a member of our team, contact us by:

• Filling in our online enquiry form; or
• Calling us on 020 7485 8811