Security of Tenure

What is security of tenure?

Security of tenure is a statutory right granted by the Landlord and Tenant Act 1954. It gives commercial tenants:

• The right to remain in occupation of the premises after the contractual term of lease comes to an end, and
• The right to a new lease on similar terms to the previous one – unless the landlord has valid grounds to oppose the grant of a new lease.

Security of tenure provides stability for business tenants. It allows them to establish a long-term base of operations and focus on business growth without the uncertainty of potential eviction at the end of their lease term.

How is security of tenure granted?

Security of tenure applies automatically to qualifying business tenancies, which generally means any business tenancy longer than 6 months.

However, the parties can agree to “contract out” of these provisions if desired.

Tenants who do not regard the property as critical to their long-term business plans may be willing to waive their security of tenure rights in return for a beneficial rent or other concessions.

How do I know if my lease has security of tenure?

To contract out of security of tenure, both parties must follow a strict procedure:

• The landlord must serve a warning notice on the tenant, notifying the tenant that it is giving up its rights to security of tenure.
• The tenant must sign a statutory declaration or simple declaration stating that it accepts the consequences of giving up these rights.
• The type of declaration depends on whether the landlord served notice more than 14 days before lease completion.
• The lease must also include a reference to the contracting out, so it should be obvious when reading the lease whether security of tenure is applicable.

Whether a lease has security of tenure makes a substantial difference to the type of commercial decisions you can make at lease end. If in doubt, seek legal advice.

What happens when the term of a protected lease ends?

For leases “inside the Act”—meaning those with security of tenure—the lease does not end on the expiry date. Instead, the tenant enters a period of “holding over.” This means they carry on paying rent and observing the lease covenants in exactly the same way as before, until somebody does something to end or renew the lease.

The landlord can get things moving by serving a section 25 notice on the tenant. The notice says one of two things:

• The landlord opposes the grant of a renewal lease, in which case the landlord must prove one of seven statutory grounds for ending the tenancy, or
• The landlord does not oppose the grant of a renewal lease, in which case the notice will propose terms for the new lease (rent, length of term etc).

The tenant can also take the initiative and serve a section 26 notice on the landlord requesting to renew their tenancy. The notices are designed to act as a trigger for the parties to come together and start negotiating terms for the new lease.

The consequences of getting these notices wrong can be very steep indeed, especially for landlords who may lose the ability to recover possession of their property for many years. Seeking professional legal advice is highly recommended to ensure compliance with the Landlord and Tenant Act 1954.

Can the tenant vacate the premises at the end of the term?

Yes, the tenant can vacate the premises if they choose. They can either:

• Vacate the property on the expiration date without providing any notice; or
• Serve a section 27 notice three months’ in advance.

Serving notice is preferable as it prevents the tenancy from continuing. Vacating the property doesn’t just mean moving out—it means delivering full vacant possession. If the tenant leaves a few fittings behind, that may be enough to keep the lease holding over.

Tenants wanting to hand the premises back should speak to an experienced commercial property solicitor for advice. Our landlord and tenant team has years of experience in lease terminations. We can end the lease properly so you don’t get stuck with a lease you thought you’d left behind.

When are court proceedings needed?

When landlords and tenants disagree, it is often because they cannot agree the terms of the renewal lease.

Generally, the terms should be the same as the existing lease, save for rent which will be assessed at market rate. Changes can and often do occur, however, not least because lease conditions that were acceptable 10 or 15 years ago, when the current lease was granted, may not be acceptable to one or both parties today.

Most lease renewal disputes can be resolved by negotiation. However, sometimes the parties will need a third party to help direct the terms of a new tenancy.

One option is PACT (Professional Arbitration on Court Terms), where an arbitrator or independent expert can resolve disputes on matters such as:

• Term of the new lease
• Rent and rent review
• Service charge disputes
• Repair clauses
• Assignment and subletting
• Break clauses
• Other terms of the new tenancy

PACT offers a viable alternative to litigation and can save both time and costs. The parties can still go to court if they prefer, presenting evidence to a judge who then makes a decision.

Can the landlord evict a tenant with security of tenure?

The landlord can only oppose the tenant’s request for a new tenancy on one of seven grounds set out in the 1954 Act.

Some of the grounds relate to the tenant’s breach of lease (e.g. persistently late payment of rent; failure to comply with repair obligations), and others allow the landlord to oppose renewal on ‘no-fault’ grounds if, for example, it wants to redevelop the property.

If the tenant objects to the landlord’s grounds, there will need to be a full hearing in court. The tenant may be entitled to compensation in certain circumstances.

There is a strict legal process for opposing a lease renewal. Our page on Section 25 notices looks at the steps involved in more detail.

How we can help with security of tenure disputes

Security of tenure is a tricky area of law. It requires landlords and tenants to think carefully about their goals before the lease is granted, and again when it is time to renew. You will need the support of specialist commercial property litigators and transactional commercial lease lawyers to guide you through the process.

Our contentious and non-contentious landlord and tenant teams can support you with all aspects of security of tenure law. We can help you with:

• Lease strategy – whether the lease should be included or excluded to protect your best interests.
• Security of tenure advice – whether the lease has been “contracted out” correctly and the implications for your business.
• Notices – drafting, serving and responding to s.25, s.26 and s.27 notices to start renewal or termination proceedings.
• Dispute resolution – working to find an equitable solution, including alternative dispute resolutions and court proceedings where necessary.
• New leases- we act for both landlords and tenants where renewal leases are being negotiated under the Landlord and Tenant Act 1954.

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

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