What is the LTA 1954 and how does it protect me as a commercial tenant?

When entering into a commercial lease, the Landlord and Tenant Act 1954 (“LTA 1954”) is an important piece of legislation to consider for both landlords and tenants in England and Wales. But why do commercial leases refer to the LTA 1954, what does it mean and how can it protect you as a commercial lease tenant?

What is the Landlord and Tenant Act 1954?

The Landlord and Tenant Act 1954 applies to commercial leases and if a lease is not specifically ‘contracted out’ of the LTA 1954, the tenant will have security of tenure. This means that the tenant has a statutory right to lease renewals at the end of the lease term, this right is granted by Part II of the LTA 1954. It also allows the tenant to claim compensation from the landlord in certain circumstances. Do note that the lease has to be for a term of more than 6 months for the security of tenure to apply.

How does the Landlord and Tenant Act 1954 protect me within a commercial property lease?

The LTA 1954 protects tenants of commercial property by giving them a statutory right to be granted a new lease of their business premises once their current lease expires, giving your business continuity and security. When your old lease expires, you will be entitled renew your commercial lease on the same terms as the old lease subject to reasonable modernisation and at a new market rent, so long as your lease is within the LTA 1954. Note that the lease can be negotiated, including the level of the new market rent for the business premises.

A landlord is, however, entitled to oppose lease renewal on certain grounds such as redevelopment. Although they are likely to have to pay compensation if you, the tenant end up having to leave the premises because of this.

Can your landlord opt in or out of the LTA 1954?

The right to automatic lease renewal can be excluded by the landlord at the outset of the lease meaning that a commercial lease can be ‘contracted out’ of the LTA 1954. This can have benefits and drawbacks for both the landlord and tenant.

Drawbacks for the tenant if the landlord opts out of the LTA 1954

If the landlord opts out of the LTA 1954 it means that the tenant will not have the benefits of security of tenure or be entitled to compensation should the landlord be in breach of this. The tenant will be required to leave the property in the condition required by the lease and the end of the term.

The decision to contract out is an important consideration for both landlord and tenant. It is also fundamental for landlords to follow the correct procedure when contracting out to avoid the provisions of the LTA 1954 inadvertently applying.

How do you bring a protected business tenancy to an end?

Within the confines of the landlord and tenant act 1954 there is a lot of legislation involved in order to bring a business tenancy to an end when the lease has security of tenure. A section 25 or 26 notice must be served, we go through these notices in more detail below.

What is a section 25 notice?

A section 25 notice is given to the tenant by the landlord towards the end of their lease agreement. As a formal notice it can either be a friendly notice (renewing the previous lease) or a hostile one, opposing lease renewal on one of the certain specified grounds stated below, the first two of which are mandatory.

1. If the property is to be demolished or renovated, particularly if it is in disrepair.
2. If the landlord intends to occupy the premises themselves.
3. If there has been a breach of repairing covenant.
4. If there has been a persistent delay in paying rent.
5. If there have been a preaches of other lease obligations.
6. If the landlord has alternative premises available for the tenant.
7. If the landlord can demonstrate that they can get more for letting the building as a whole compared to letting to several smaller businesses.

A section 25 notice has a minimum notice period of 6 months and a maximum notice period of 12 months and it must be served in accordance to the way detailed within the lease agreement in order to be effective and must clearly state the deadline. If the notice isn’t served in the prescribed way as set out within the lease it will be defective.

A court application can be submitted once the section 25 notice has been given, something that must be done before the deadline stated on the notice itself.

What is a section 26 notice?

A section 26 notice is a similar notice but is served by the tenant who wishes to lawfully renew or terminate the contractual term of a commercial lease, not more than 12 months and not less than 6 months before the proposed commencement date. It must be served on the competent landlord, who may not be the tenants immediate landlord.

It should be noted that if a landlord has issued a section 25 notice, the tenant is unable to then issue a section 26 notice and vice versa. It is also worth noting that, although a tenant does not need to respond to a section 25 notice, the landlord must respond if they oppose the notice.

Do you have to serve a section 25 notice if you contracted out of the LTA 1954?

If your tenancy agreement was validly contracted out of the LTA 1954 then the tenancy will simply end at the end of the contractual term stated in the lease documents. No notice of any kind will need to be served.

How can we help here at Woollcombe Yonge

Here in our Commercial Property Department, we have a wealth of experience in commercial leases and the LTA 1954. We can discuss the options with you and advise you of the benefits/pitfalls of both options, and help you come to a decision on whether to contract out of the LTA 1954 or not. We will also ensure that you contract out correctly to avoid any future issues and assist with preparing section 25 and 26 notices if required.

Please contact us on 01752 827938 or email us at KS@wysolicitors.co.uk for more information.