Security of tenure: what it means
If the relationship is not formalised at the start of a tenancy, it is possible that there will be unforeseen consequences – it’s not just what you agree or even write down.
Under Part II of the Landlord and Tenant Act 1954, where a tenant has been occupying a property for the purpose of running their business, the tenant ordinarily has a statutory right to renew their tenancy at the end of the lease. That is known as ‘security of tenure’. This right to renew will apply even if the parties did not contemplate that or agree to it at commencement of the tenancy.
However, the parties can, subject to following the correct procedure, agree that ‘security of tenure’ is excluded, meaning that the tenant will not have the benefit of a statutory right to a renewal lease at the end of the lease term and therefore cannot apply to the court for a renewal lease where it is unable to agree terms with the landlord. A specific procedure must be followed to ‘contract out’ of the 1954 Act. Any failure to comply with this procedure will mean that the tenant will have the benefit of a statutory right to renew.
Whether or not a lease should have 1954 Act security of tenure protection is an important consideration for the parties at the grant of a new lease. The landlord may want to retain the ability to choose its tenants, whereas the tenant may need to protect its position in the market which may be closely related to its location. A number of factors may affect the decision, including the bargaining power of the respective parties, the economic climate, and any future business plans. The decision should be taken with appropriate legal advice.
If a tenant has been running a business from premises and obtained security of tenure protection under the 1954 Act, that can make it very difficult (if not impossible), not to mention time-consuming and costly, for a landlord to recover possession. It is vital to seek legal advice at an early stage and certainly before a tenant is allowed into occupation.