Business Tenancies & Security of Tenure (LTA 1954)

The Landlord and Tenant Act 1954 — Security of Tenure

The Landlord and Tenant Act 1954 (LTA 1954) is one of the most important pieces of legislation governing commercial property in England and Wales. Part II of the Act gives business tenants the right to remain in occupation at the end of their lease and to apply for a new tenancy — a right known as security of tenure. Understanding whether a tenancy is protected by the LTA 1954, and how those protections operate, is essential knowledge for both commercial landlords and tenants.

Does the LTA 1954 Apply to Your Tenancy?

Part II of the LTA 1954 applies to tenancies where the tenant occupies the premises for the purposes of a business carried on by the tenant. The Act applies to a very wide range of tenancies — shops, offices, warehouses, restaurants, gyms, clinics and many more. However, there are important exclusions, including:

• Tenancies with a term of 6 months or less (unless the tenancy has been renewed or the tenant has been in occupation for more than 12 months)
• Tenancies granted at an annual rent of less than two-thirds of the rateable value
• Agricultural tenancies
• Mining leases
• Tenancies contracted out of the Act (see below)
• Licences to occupy (which are not tenancies at all)

Contracted-Out Tenancies

A landlord and tenant can agree to exclude the security of tenure provisions of the LTA 1954 — creating a "contracted-out" tenancy. The procedure for contracting out is strictly prescribed by statute:

1. Before the lease is granted, the landlord must serve a formal warning notice on the proposed tenant in the prescribed form
2. The tenant must make a statutory declaration (before an independent solicitor or commissioner for oaths) confirming they understand they will not have security of tenure
3. The lease must then contain a reference to the warning notice and the declaration

If any step in this procedure is not followed correctly, the exclusion is invalid and the tenancy retains full LTA 1954 protection. Our solicitors advise landlords on correctly documenting contracted-out tenancies, and tenants on the implications of signing one.

Section 25 Notices — Landlord's Notice to Terminate

A landlord who wishes to end a protected tenancy must serve a formal notice under section 25 of the LTA 1954. A s.25 notice must:

• Be served not less than 6 months and not more than 12 months before the proposed termination date
• State whether the landlord will oppose the grant of a new tenancy and, if so, on which statutory grounds
• Comply with the prescribed form

If the landlord does not oppose renewal, the s.25 notice must also propose the terms of a new tenancy. The tenant then has a right to apply to the court for a new tenancy before the termination date specified in the notice (subject to any agreed extension). Our solicitors advise landlords on serving s.25 notices correctly and advise tenants on responding to them.

Section 26 Requests — Tenant's Request for a New Tenancy

A tenant who wishes to renew a protected tenancy can serve a request for a new tenancy under section 26 of the LTA 1954. A s.26 request must:

• Be served not less than 6 months and not more than 12 months before the proposed commencement date of the new tenancy
• Propose the terms of the new tenancy (including the rent, term and other conditions)
• Comply with the prescribed form

On receipt of a s.26 request, the landlord has 2 months in which to serve a counter-notice if it wishes to oppose the grant of a new tenancy. Failure to serve a timely counter-notice means the landlord cannot oppose renewal. Our solicitors advise tenants on when and how to serve a s.26 request and advise landlords on responding to them.

Opposing Lease Renewal — Statutory Grounds

A landlord can only refuse to grant a new tenancy to a protected tenant on one or more of the seven statutory grounds set out in section 30(1) of the LTA 1954:

• Ground (a) — The tenant's failure to repair the premises
• Ground (b) — The tenant's persistent delay in paying rent
• Ground (c) — The tenant's other substantial breaches of its obligations under the lease
• Ground (d) — The landlord has offered and is willing to provide suitable alternative accommodation
• Ground (e) — Possession of the part held under a sub-tenancy is required for letting or disposing of the property as a whole
• Ground (f) — The landlord intends to demolish or reconstruct the premises and cannot reasonably do so without obtaining possession
• Ground (g) — The landlord intends to occupy the premises for its own business or residence

Grounds (a), (b), (c) and (e) are discretionary — even if proven, the court may still order a new tenancy. Grounds (d), (f) and (g) are mandatory — if established, the court must refuse a new tenancy. Our solicitors advise landlords on establishing opposition grounds and tenants on challenging them.

Compensation for Disturbance

Where a landlord successfully opposes renewal on grounds (e), (f) or (g), the tenant is entitled to compensation under section 37 of the LTA 1954. Compensation is calculated as a multiple of the rateable value of the premises — one times the rateable value where the tenant has been in occupation for less than 14 years, and twice the rateable value where occupation has been 14 years or more. Our solicitors advise tenants on their entitlement to compensation and ensure it is properly claimed.

Interim Rent

Once a s.25 notice or s.26 request has been served, either party can apply to the court for an interim rent — the rent payable during the period between the end of the old lease and the grant of the new one. Interim rent is usually set at the open market rent for the premises, which in a rising market will typically be higher than the passing rent under the old lease. Our solicitors advise on interim rent applications and represent clients in court proceedings.

Court Proceedings for New Tenancies

Where the terms of the new lease cannot be agreed by negotiation, either party may apply to the County Court for the court to determine the terms — including the rent, term length, and other conditions — of the new tenancy. Court proceedings are a last resort and the vast majority of lease renewals are resolved by negotiation between the parties' solicitors. However, the court application must be made before the deadline imposed by the s.25 notice or s.26 request, or the right to renew is lost. Our solicitors manage the renewal process proactively, ensuring deadlines are never missed.

Frequently Asked Questions