Understanding Protected Commercial Leases

If you are a commercial landlord or commercial tenant, then it is essential to understand whether the lease you are about to grant or the lease you are about to take is protected or not. Whether you are a landlord or a tenant, if you are unaware of the status of your lease, then this could become an issue for you further down the line when you wish to terminate or renew it.

What is a Protected Commercial Lease?

A lease which is protected under Part II of the Landlord and Tenant Act 1954 (“LTA 1954”) will not automatically come to an end when the contractual term expires. The tenant can stay in occupation of the leased property beyond the contractual term of the lease, a period which we call “holding over”. In these circumstances, the tenant is said to have security of tenure under the LTA 1954 and to have a “protected lease”.

Why is this important?

It is important to establish whether the Commercial Lease you are dealing with is protected or not if you are a commercial landlord, as it means you cannot regain possession of the property unless you follow the required procedure under the LTA 1954. If a landlord wants to regain possession of the property and their tenant has a “protected lease”, then this can cause problems as it can be difficult for the landlord. The landlord would have to serve a formal s25 Notice on the tenant to confirm if they are willing to offer a lease renewal or if they would object to the grant of a new lease. If the tenant wishes to stay at the property and the landlord serves a hostile s25 Notice, then ultimately the matter can end in court for final determination if there is a dispute. For the landlord to defeat the tenant’s right to a renewal lease, the landlord must rely on certain statutory grounds, which can be very difficult.

If you are a commercial tenant, then it means that your lease will continue in place beyond the contractual term of the lease, and you will be “holding over” under the LTA 1954 until such time that it is terminated in accordance with the act. A tenant can terminate the lease by serving a formal s26 Notice on the landlord, which will provide details of the proposed terms of the tenant for a renewal lease to be granted by the landlord and will also terminate the existing lease. The tenant can also serve a s27 Notice if they wish to relinquish their rights of protection under the LTA 1954 and terminate the lease.

When is a lease not protected?

When a new commercial lease is granted, in order for the lease to be granted without security of tenure under the LTA 1954, a certain procedure has to be followed. Under this procedure, the landlord serves a formal warning notice on the tenant confirming that the lease they are about to take is to be granted without security of tenure. The tenant is then required to sign a simple declaration or swear a statutory declaration (depending on the timing of service of the notice and when completion of the lease is to take place) to confirm the tenant agrees for the lease to be granted without protection. The lease also will contain a confirmation clause to say that the lease is granted without the protection of the LTA 1954. If this procedure is followed, then the lease, when granted, will be excluded from the security of tenure provisions of the LTA 1954, and will not be protected.

Need advice or assistance?

It is important to understand if you have a protected commercial lease or not, as it will affect both the landlord and the tenant and their rights regarding termination of the lease and renewal. If you need assistance or advice, please contact Daniel Sturman on 0330 818 2978 or the Commercial Real Estate Team at Birkett Long, we would be very happy to assist.