Commercial Leases Without Security of Tenure

What to Do as a Landlord When the Lease Expires

If you are a commercial tenant who has been occupying premises under a lease which has expired or is about to expire, you may not wish to take the first step towards renewing it if the landlord does nothing. Why spend time and effort on this when you are continuing to pay rent demanded by the landlord? It can be easy to find that this situation can carry on for several months or years and the question of what basis you are occupying your premises can be overlooked, particularly in these tough economic times. However, issues or disputes can arise in future if this is not understood or promptly addressed. If you are a commercial tenant in this situation, the nature of your occupation is one which is not necessarily clear-cut.

In a previous blog (Commercial Leases Without Security of Tenure – What to Do as a Landlord When the Lease Expires) we highlighted the issues that a landlord could face in renewing a lease without security of tenure if it has delayed in taking action. A commercial tenant could also face a number of risks. Being informed about your occupation and taking steps promptly could save you considerable time and money in future.

The first point you should consider when your lease is due to expire is whether the lease benefits from what is called ‘security of tenure’ under the Landlord and Tenant Act (LTA) 1954. A lease with security of tenure would permit you to securely remain in occupation of your premises after your lease expired, on the same terms as your existing lease. This situation would continue until a new lease is negotiated with the landlord, or until either you or your landlord seek to terminate your occupation by serving a statutorily prescribed notice.

However, the security of tenure rights referred to above can be removed at the outset of a lease by a tenant agreeing to contract out of the protection of the LTA 1954, if required by a landlord.

To do so, your landlord would have had to complete one of two procedures to ‘contract-out’ at the start of your lease. It would have had to send you, or your solicitors, a ‘warning notice’ advising you of your rights and that these are proposed to be waived. It would have sent with this either a declaration, which you would have had to sign, or a statutory declaration, which you would have had to swear at a firm of solicitors.

As security of tenure rights give a tenant considerable advantages, it can be difficult to persuade a landlord to agree to them when negotiating the terms of a lease.  If you have no security of tenure, you are required to leave the premises at the end of the term. But what happens if you stay and the landlord says nothing and continues to demand rent which you pay? Depending on how long this situation has lasted, it could be implied that you are now occupying under a wholly separate implied tenancy. This implied tenancy would benefit from security of tenure, giving you a number of important rights which the landlord would not have intended you to obtain.

Excellent, you might think – so all I have to do is keep quiet and continue to pay rent to my landlord.  However, the problem is determining when an implied tenancy may have arisen. The risk to you here as a tenant is uncertainty as to what basis you are now occupying and the possibility that in future the landlord could require you to leave at short notice.

One thing as tenant that you do need to be careful of when staying at premises after the expiry of a contracted-out lease is where the Landlord has served on you a notice to quit. If you do not leave the premises on the date required under the notice, the landlord is entitled to charge you double rent under the little-known Distress for Rent Act 1737.

It may be that you are willing to accept the risks of continuing to ‘hold over’ after the expiry of your lease without security of tenure, especially if you have made a decision to move on from the premises shortly after the lease expires. For those who would prefer to stay at the premises,  the uncertainty of holding over after the  lease ends may not be desired. If that is the case, it is best that you approach your landlord for a new tenancy well in advance of the expiry date so that the new lease will be in place when the existing lease expires.

If you need any advice on making the right decision for your business, feel free to contact us by email at mail@clarkeandson.co.uk or by phone on 01256 320555, asking for our commercial property team.