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As a Commercial Tenant taking lease of a business premises, you may be asked upon signing, by your landlord, to 'contract out' of your security of tenure. In this blog our Commercial Property team will discuss the basics of what a security of tenure is and what it means for you.

What is a Security of Tenure?

When taking a lease on business premises, the tenant has a statutory right under Part II of the Landlord and Tenant Act 1954 (1954 Act) to remain in the premises at the end of the contractual term and apply to the court to renew its tenancy. This statutory right is also known as 'security of tenure'.

When entering into a new lease the 'security of tenure' may be specifically excluded before the lease is entered into. In order to “contract out” of the 1954 Act, the Landlord must serve a warning notice on the tenant that the tenancy will not benefit from security of tenure. If the notice is served on the tenant at least 14 days before the lease is entered into then the tenant may make a simple declaration that it has received the notice and accepts the consequences of entering into a lease which has been contracted out.

If the warning notice is not served on the tenant at least 14 days before it enters into the lease then the tenant must make a statutory declaration in the presence of an independent solicitor or commissioner for oaths. In practice, the nature of commercial property transactions requires this second form of declaration to be made.

What does this mean?

If security of tenure is excluded from a lease of business premises then the tenant will be required to vacate the property once the lease comes to an end. The tenant may only remain in the property if the landlord has agreed to grant a new lease. The tenant will not be entitled to claim compensation for loss of their business premises unless the lease specifically provides for this right.

Both the landlord and the tenant should take great care to consider the effects of the 1954 Act when negotiations are entered into at the commencement of the transaction. In particular, the tenant should consider the importance of the premises to the tenant’s business and the costs associated with locating to new premises. If the property is an integral part of the tenant’s business then they may require the protection afforded in the 1954 Act.

Similarly, the landlord should have regard to the rights granted to a tenant benefitting from security of tenure. If the landlord has an intention to sell the property in the future, a sitting tenant with the benefit of security of tenure may have an impact on the value or saleability of the property. Unless the landlord intends to occupy the premises for their own purposes, there are limited grounds permitted by the 1954 Act upon which the landlord may oppose a renewal of a lease protected by security of tenure. Even if the landlord satisfies one of the permitted grounds, they may be liable to compensate the tenant for loss of its business premises.

Contact Us

If you are looking to enter into a commercial lease and require legal advice, please get in touch with our team of experts at info@ramsdens.co.uk, fill out our online enquiry form or call us on 01484 821 500.