Out On A Limb

When you enter a business tenancy you will quickly have to decide whether or not you want to contract out of the security of tenure provisions in the Landlord and Tenant Act 1954 (the Act).

What is security of tenure?

Where security of tenure applies to a commercial lease, the end of the contractual term does not mean the end of the tenancy. The tenant is entitled to remain in occupation, and to call for a new lease, unless the landlord can rely on one or more of the very limited statutory grounds for regaining possession. Even if the landlord can rely on one of the statutory grounds, termination of the tenancy is likely to involve payment of compensation.

What factors must be present for a tenancy to benefit from protection under the Act?

Broadly, there are three requirements that must be present to ensure the security of tenure provisions of the Act apply:

• there must be a tenancy
• the tenant must be in occupation.
• the tenant must be using the premises for the purpose of running a business

The provisions of the Act will not apply to tenancies where the tenant has contracted out, has a fixed-term tenancy of six months or less or where there is a Tenancy at Will in place.

What is contracting out of security of tenure? 

A tenant can choose to contract out of the right to security of tenure.  The landlord is obliged to serve notice on the tenant and the tenant should in turn sign a declaration that they have received the notice and accept the consequences of the agreement to contract out. If the notice is served within 14 days prior to the grant of the tenancy or any agreement to grant it, the tenant must make a statutory declaration before an independent solicitor.

When can I contract out?

The whole ‘contracting out’ process must be completed before the tenant takes the lease or becomes contractually bound to do so. If this requirement is not met, then the agreement to exclude security of tenure will be void and the tenant will have the full protection of the Act.

What are the consequences of contracting out?

Agreeing to contract out of the security of tenure provisions has serious consequences and cannot be done without the tenant receiving legal advice.

If your landlord requests that you contract out of the security of tenure provisions, they must serve you with a "Health Warning Notice" at least 14 days before entering into the commercial tenancy agreement.

The Health Warning Notice should outline the following consequences of contracting out of security of tenure:

• You will have no right to stay in the premises when the lease ends.
• Unless the landlord chooses to offer you another lease, you will need to leave the premises.
• You will be unable to claim compensation for the loss of your business premises, unless the lease specifically gives you this right.
• If the landlord offers you another lease, you will have no right to ask the court to fix the rent.

Contracting out of the Landlord and Tenant Act 1954 security of tenure provisions can have significant consequences for you and your business.  It is crucial that you seek independent legal advice if your prospective landlord asks you to contract out, to ensure your commercial interests are protected.

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