A guide to commercial tenant’s rights
Commercial tenants have fewer rights under a business lease than residential tenants do under a tenancy agreement. Nevertheless, commercial landlords must still adhere to certain laws when negotiating and managing leases for business premises.
Business leases are, quite simply, a lease whereby a tenant occupies the premises for the purposes of his or her business. Such leases are defined in the .
Certain tenancy types are excluded under of the 1954 Act. These are:
- Agricultural / farming tenancies
- Mining leases
- Tenancies of premises licensed for the sale of alcohol for on-site consumption (not including hotels, restaurants, theatres and other entertainment venues, public gardens, picture galleries, exhibitions and other businesses or functions for which holding a license would be secondary to its main purpose)
Section 43 also excludes tenancies that last for less than six months, unless either of the following conditions is met:
- The lease provides, from the outset, for extension or renewal beyond the six month period; or
- The tenant has already occupied the premises for a total of twelve months or more (if the tenant took over the premises for the purpose of carrying on the same business as his or her predecessor, their combined tenures count towards this total)
For the vast majority of business tenancies that are governed by the 1954 Act, the following rights will apply:
The right to security of tenure
Business tenancies are initially signed for a fixed period and come to an end on a set date. This period is known as the fixed term. If your tenant wishes to leave on this date, they can do so by handing you written notice stating that they do not wish to continue in the tenancy (S. 27).
If they do not give notice, however, and assuming they have not broken the terms of the lease, the tenancy will not naturally end; your tenant will retain both the right to remain in the property and the obligation to continue paying rent (S. 24). They also have the right to request a new tenancy (S. 26).
If you wish to terminate the lease at this stage, you can attempt to do so under section 25 of the 1954 Act. If you do, and/or if your tenant has made a request for a new tenancy, they may apply to the court for a new tenancy to be granted.
You may oppose the application if you wish (S. 30); however, you may only do so on the following grounds:
- Your tenant has failed to meet their obligations to repair and maintain the property and the state of the property has deteriorated as a result;
- Your tenant’s rental payments have been subject to persistent delays
- Your tenant has breached the conditions of the lease in another ‘substantial’ way
- You have offered to secure suitable alternative accommodation for your tenant
- The tenancy was a sub-lease of only part of a property subject to a head-lease; you (the landlord) hold an interest in the property that will be realised when the head-lease terminates; you intend to re-let or sell the entire property upon terminating the sub-lease; and the rent for the property as a whole is substantially more than the rent you could reasonably expect for sub-letting each part separately
- You need to demolish the property, or undertake renovation work that you could not do if the property were occupied
- You intend to occupy the property for your own commercial or personal uses
In most cases, however, court proceedings are not necessary; landlords are well aware of their commercial tenant’s rights and will come to an agreement separately.
The right to receive compensation if a new lease is not granted
If a court does not grant a new lease to your tenant for reasons excluding breach of contract, rental delays and/or non-payment or an offer of alternative accommodation, your tenant will be entitled to statutory compensation (S. 37). At present, the compensation payable will be one or two times the rateable value of your property 1.
‘Contracting out’ of the Landlord and Tenant Act
If you are a landlord of a commercial property and do not wish for your tenants to have renewal rights, you may be able to ‘contract out’ of the Landlord and Tenant Act.
Under a contracted out agreement, when the lease comes to its end, the tenant has no right to remain in the premises or renew the lease. Any desire to renew the lease from either party, will require negotiation.
This scenario may arise, for example, where the property forms part of a building, with other areas under different leases. It may be the case that you want to further develop the building in the future, or that the tenancy is only a short-term lease.
In order to contract out of the Act, you must serve a formal notice on the tenant, who must make a declaration that they understand the rights they are foregoing.
We recommend that you seek relevant legal advice.
For ease of reference, each section of the 1954 Act has been cited next to the part of the article to which it relates. Below is a list of all relevant sections of the Act discussed above:
- The Landlord and Tenant Act 1954 Part II – Security of Tenure for Business, Professional and other Tenants
- Section 24 – Continuation of tenancies to which Part II applies and grant of new tenancies
- Section 25 – Termination of tenancy by the landlord
- Section 26 – Tenant’s request for a new tenancy
- Section 27 – Termination by tenant of tenancy for fixed term
- Section 30 – Opposition by landlord to application for new tenancy
- Section 33 – Duration of new tenancy
- Section 34 – Rent under new tenancy
- Section 37 – Compensation where order for new tenancy precluded on certain grounds
- Section 43 – Tenancies excluded from Part II
This information should not be interpreted as financial advice. Bridging loan rates are subject to change. Speak to our advisors for a loan illustration.