Commercial Tenants and Contracted Out Leases

If you rent or lease the premises where you conduct your business, then you are a business tenant.

The Landlord and Tenant Act 1954 gives business tenants a certain degree of legal protection and broadly speaking gives business tenants security of tenure - the right to renew the tenancy when it comes to an end. However, what happens if the landlord refuses to grant a new lease?

The right to a new lease is dependent on whether the right was excluded when the original lease was completed. If this is the case then a declaration would have been signed by the tenant in order to exclude this right. If a declaration has been signed and the right to a new lease has been excluded the lease is regarded as ‘contracted out’.

If the lease is contracted out, the opportunity of a new lease may not have been lost and our advice would be for tenants to speak to their landlord as soon as possible and enter into negotiations for a new lease.

If the negotiations are unsuccessful prior to the expiry of the existing contractual term of the lease with the tenant remaining in occupation, there may be legal consequences.

In some circumstances the Court has decided that the tenant is in occupation under a ‘periodic tenancy’ which has the protection of the 1954 Act and as a consequence has a right to a new lease. Alternatively, it could be deemed that the tenant may only be occupying under a ‘tenancy at will’ and could be asked by the landlord to vacate the property immediately.

This is an area of the law which creates uncertainty for both landlords and tenants with potentially disastrous consequences, for the landlord if they cannot regain control of the property but also for the tenant who could be asked to leave with immediate effect.

The importance of entering into negotiations with the landlord as soon as possible in order to agree a new lease before the existing one expires cannot be stressed enough, the potential consequences of whether or not a tenant’s occupation post lease expiry is by way of a period tenancy are not worth it..

For more detailed information on any of the areas outlined above please contact a member of our Commercial property team who would be delighted to share their expertise with you.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.