Right to a New Lease

Whether your tenant has a right to a new commercial lease depends on whether Part II of the Landlord and Tenant Act 1954 (the Act) applies to the tenancy or whether the lease has been contracted out of the security of tenure provisions of the Act.

If the lease is not contracted out of the Act, the tenant of a business lease has a statutory right to a renewal lease at the end of the contractual term if it satisfies the criteria in section 23 of the Act.  

The qualifying criteria in section 23 of the Act can be broken down as follows:

• Is there a tenancy?
• Does the tenancy relate to the premises?
• Does a business occupy the premises?
• Does the tenant carry out the business?
• Does the tenancy fall within any of the specific exclusions?

If the tenant satisfies the criteria and does not fall within any specific exclusions, the tenant will be entitled to a new lease at the end of the contractual term. But what does the above mean?

A tenancy is defined by section 69(1) of the Act as being created out of the freehold. A tenancy does not need to be in writing. However, it must be noted that the qualification of a tenancy for the purposes of the Act does not give the tenant the right to serve a section 26 request.

The term tenancy excludes tenancies at will, agricultural holdings, mining leases, service tenancies, fixed term tenancy, and tenancies contracted out of the Act.

The tenant must occupy the premises for the purpose of a business. 

There are two aspects to this (1) occupation and what this means in practice and (2) business and what this means in practice.

Occupation implies that there is a physical presence and control of the premises. 

A tenant’s intention to occupy a business may satisfy the criteria. However, the tenant will only be entitled to a new lease if it is occupied. Therefore if a tenant vacates the premises, it must be determined whether the tenant is actually in occupation. If the tenant, for example, moves out of the premises for fitting out, likely, it will still be in occupation.

What if the tenant has sublet the premises?

If the tenant sublets all of the premises, it will lose the protection of the Act as it will not be deemed to be in occupation. If the tenant underlets part, the tenant will not be able to request a new tenancy of that part of the premises.

An undertenant can request a new lease directly from the head landlord if it satisfies the criteria in the Act.

What if the premises are deemed to be unusable?

Suppose the premises are damaged because access cannot be gained or the premises are unsafe. In that case, the tenant will still be deemed to be in occupation so long as the tenant has no control over the events causing the damage and the tenant communicates to the landlord that it intends to reoccupy.

Some tenancies are specifically excluded from the protection of the Act. They include, amongst others, but most commonly:

• Agricultural holdings. This will include all land demised by an agricultural tenancy, whether or not it is used for agricultural purposes.
• Mining leases.
• Service tenancies.
• Tenancies for six months or less.
• Farm business tenancies.
• Leases of railway property granted in pursuance of franchise agreements.
• A home business tenancy.

The landlord can serve a notice according to section 40 of the Act to identify leases that might have statutory renewal rights. This notice allows the landlord to request details of any underleases that may have been created. The notice can be served on the tenant at any time in the last two years of the tenancy.