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The right of business tenants to security of tenure

Security of Tenure for Business Tenants

What is security of tenure for business tenants?

In general, tenants of commercial premises have security of tenure, which means they have the right to remain in occupation of the premises at the end of the term of the lease and can apply to court for a new lease to be granted. The landlord can only resist such an application on certain grounds (see below).

How to exclude security of tenure from a lease

The landlord and tenant can agree that a lease will be granted without security of tenure. Before 1 June 2004, a court order was required in order to exclude the security offered to business tenancies. A court order is no longer required: instead, a three step procedure must be followed by the landlord and tenant. The procedure is set out below. A failure to follow this procedure risks the tenant acquiring security of tenure.

Step 1 involves the landlord giving a “landlord’s notice” to the proposed tenant. This notice contains a "health warning" which explains to the proposed tenant the effect of entering into a lease without security of tenure.

Step 2 requires the tenant to sign a “simple” declaration or swear a statutory declaration confirming that the tenant has received and read the landlord's notice and that the tenant accepts the consequences of entering into a lease without security of tenure.

Step 3 is the inclusion of a statement in the lease referring to the landlord's notice, the tenant’s declaration and the parties' agreement to exclude security of tenure.

Leases with security of tenure – grounds for the landlord to oppose renewal

If security of tenure has not been excluded using the procedure outlined above, the tenant will have the right to seek a new lease when its lease expires. There are limited grounds on which the landlord can object to the grant of a new lease. These are set out in section 30(1) of the Landlord and Tenant Act 1954 and can be briefly summarised as follows:

(a) tenant’s failure to comply with repair obligations;
(b) tenant’s persistent delay in paying rent;
(c) tenant’s breaches of other obligations or use or management of the premises;
(d) landlord has offered suitable alternative accommodation;
(e) landlord requires the whole of the premises for subsequent letting (applies only where the lease in question is an underlease of part);
(f) landlord intends to demolish or reconstruct the premises;
(g) landlord intends to occupy the premises itself.

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