Leases- “To be contracted out, or not to be contracted out, that is the question”

In advising tenant clients I often come across those who are not familiar with the status of their lease tenancy in respect of how secure it is at the expiry of the lease. In brief the Landlord and Tenant Act 1954 (L&T Act) governs whether at the end of a lease term if the landlord can ask a tenant to leave the premises or if the tenant is automatically entitled to a new lease. It is important as a tenant to know the lease status particularly before you enter into a lease.

Landlords will quite often offer up a new lease which is outside the terms of the L&T Act which means at the expiry it can then remarket the property and ask the current tenant to leave should it prefer to have another tenant in the premises or use it for other purposes. This is commonly known as a contracted out lease.

If the lease is taken inside the terms of the L&T Act then the landlord is obliged save in a few specified circumstances to offer the tenant a new lease upon terms to be agreed. The main permitted circumstance enabling the landlord to refuse to grant a new lease is if it wishes to re-develop the premises. In that circumstance a tenant is entitle to compensation of either 1x or 2x the rateable value of the premises.

If you are looking to take a new lease you should seriously consider whether your business model could be adversely affected if your lease was contracted out and you were not automatically guaranteed a new lease or at least the compensation mentioned above once your existing lease term expires. If your business is such that it relies heavily on location and goodwill such as with a popular restaurant you may wish to ensure in the negotiations that you request a lease “inside the L&T Act” so that you can be sure of continuity for the business over a long period of time.

If you have a query or would like to book an appointment with our Commercial Real Estate team then please get in touch with our First Contact team on 01256 320555 or email mail@clarkeandson.co.uk

Phil Dixon

Head of Commercial Real Estate

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