Should I take a lease that’s ‘outside’ of the Landlord and Tenant Act?

Renting a business premises can be stressful, especially when it comes to negotiating your lease. Both you and your landlord will be trying to secure the most advantageous terms for your respective businesses and, without legal expertise and knowledge behind you, you may find yourself agreeing to terms with repercussions you are unaware of – until it is too late.

For example, your landlord might ask that your lease be contracted ‘outside’ of the Landlord and Tenant Act 1954. This Act governs all aspects of the relationship between commercial landlords and tenants, and contains sections that provide commercial tenants with what is called ‘security of tenure’.

What is security of tenure?

If a lease is contracted ‘inside’ the 1954 Act, a tenant’s lease will automatically continue when the term expires until the tenant either ends the lease or applies to renew it on the same or different terms. This is called security of tenure, and it means that businesses are protected from eviction from their premises when their lease expires. Leases protected by security of tenure must also be renewed at a price that reflects the current market rate, protecting tenants from sharp rent increases at the end of each lease term. The landlord cannot refuse to renew the lease of a tenant benefiting from security of tenure except in certain specific circumstances, for example:

• The tenant is in breach of contract (by not paying their rent, for instance)
• The landlord wants to repossess the premises for their own use or for redevelopment
• The landlord believes they will get more rent from renting out the whole premises
• The landlord provides a suitable alternative premises

If your landlord asks you to sign your lease outside of the 1954 Act, you’ll lose all the rights associated with security of tenure. You would not be automatically entitled to renew your lease and your landlord could refuse to renew, or offer you a lease that is much less favourable than your current one – not an ideal scenario. You will also lose the right to claim compensation for the loss of your business premises, unless the lease specifically gives you this right.

Inside or outside – do I have a choice?

If a landlord is asking you to contract out of the Landlord and Tenant Act, it is important to ensure you understand the various implications of doing so before agreeing to such terms. It is therefore highly advisable to instruct a Commercial Property solicitor with experience in lease negotiation in order to have the best chance of securing favourable terms.

Your solicitor will be able to explain the cost and practical implications of contracting out of the 1954 Act and provide you with the understanding you need to make an informed decision. For example, if you are looking to spend a significant sum fitting out your premises, or hoping to build goodwill by having your business premises in a particular location, you may specifically want the right to renew your lease and remain in the premises at the end of the lease term.

If you want the right to stay in your business premises after your lease expires, it is important to consult your solicitor to explore your options. For example, even if your landlord wants the lease to be contracted outside of the 1954 Act, they may be amenable to the inclusion of an ‘option to renew’ clause in the lease that gives the tenant the right to renew the lease at the end of the term. This will not offer all the statutory protections available under the 1954 Act, but it does ensure that a tenant can remain in their premises after the end of the contract term.

Contracting out

If, after discussion with your solicitor, you make the informed decision to agree to a lease outside of the 1954 Act, you will have to sign a waiver to show that you understand the consequences of giving up your right to security of tenure. Your landlord will serve a warning notice on you informing you that you have agreed to a contract outside the Act. If this is served at least 14 days before you commit to the lease, this waiver will take the form of a simple declaration to say that you have received the notice and accepted its consequences. If you do not receive at least 14 days’ notice, you will need to sign a statutory declaration, in the presence of an independent solicitor or another professional with the power to administer oaths.

Securing your business’s future

Landlord-tenant relations and the law surrounding commercial leases can both be complicated. That’s why Attwaters Jameson Hill’s Commercial Property team is on hand to help both parties to successfully negotiate a mutually satisfactory lease that meets their long-term business goals. To get in touch, please call Adam Perin on 0203 871 0049 or email adam.perin@attwaters.co.uk.