Commercial Leases: What is “Security of Tenure”?

Image of the clock ouside the courthouse

 

Understanding the intricacies of legal terminology can be tricky. If you are seeking out a lease for your business premises you may have come across the term “security of tenure”. What’s more, you could be asked to “contract out” of it. In this blog our commercial team explain what exactly this means for you.

 

What is Security of Tenure?

Occupation of business premises usually comes with ‘security of tenure’. Essentially, what this means is that the tenant will have the right to request a new lease after the original term of their lease has expired, on the same terms (except for the rent) as it had before.

It is worth noting however, that the landlord can oppose the renewal. They can do this only on certain grounds; such as if the tenant had been tardy in paying their rent over the term, or if the landlord wishes to end the lease in order to redevelop the property.

This right is what is known as a statutory right and it is derived from Part II of the Landlord and Tenant Act 1954.

 

Security of Tenure – Do I have it? Do I need it?

Security of tenure is an automatic right, and it applies in most circumstances. Unless you have “contracted out” of it in your lease then you will most likely have security of tenure if you occupy premises under a lease for business purposes. If you have contracted out, this will be  stated in your lease.

There are many reasons why a tenant may wish to have security of tenure- for example if they are going to invest money in the property or build up goodwill.

 

What is “Contracting Out”?

Before a new lease is entered into, the landlord and the tenant can choose to “contract out” of the lease. This is not unusual and will normally have been discussed early in the negotiations. Often before lawyers are involved.

 

General Power of Attorney

 

Before the lease is signed, the landlord serves notice on the prospective tenant in a prescribed form, and the tenant surrenders their statutory right under the Landlord and Tenant Act. They do this by signing a declaration to prove that they understand what they are doing.  Depending on the timescales, the declaration may need to be made in front of an independent solicitor.

‘Contracting out’ means that when the lease term expires, the tenant may need to vacate the premises, unless a new lease is agreed. The effect of contracting out is that the landlord maintains a tighter control over what happens with their property.

 

Do you require advice on Security of Tenure?

Security of tenure and the ins-and-outs of commercial leases is a complex and technical area of law. The process for contracting out has strict rules and specific forms of wording. If you need any advice on this subject, our commercial team would be happy to help, and can be contacted on 01332 364436.

 

Post written by Matthew Light
June 2019

Blog by Area of Expertise