Posted on 25 October 2023
Security of Tenure – what is it and why should you think about it? Security of tenure is this week’s topic in my “A to B” Series on Heads of Terms. If you are doing a property deal (or other deal), you will find this Series useful. For a general introduction to HOT’s, a good place to start is my first article What are HOTs?. This will give you an overview of Heads of Terms and what they should contain. Later blogs dive into more detail on things to think about when agreeing terms – like this one on Leasehold Assignment. Today I’m discussing security of tenure, and why this is important for landlord and tenant alike.
Security of Tenure – What is it?
Security of tenure is the right to remain in premises, even when your lease has expired. It is given to business occupiers under the Landlord and Tenant Act 1954. The two main limbs of protection are:
- Right to require a new tenancy, when the old one expires; and
- Right to “hold over” in the premises, when the old one expires, until a new tenancy is granted or the old one is terminated.
You might see “Security of Tenure” referred to in Heads of Terms in lots of different ways. For example:
- “protected tenancy”;
- “lease with the protection of the Landlord and Tenant Act 1954”;
- “secure tenancy”;
- “inside the Landlord and Tenant Act 1954”;
- “inside the Act”;
- “not contracted out of the Landlord and Tenant Act 1954”, and so on.
All of these phrases mean the same thing – that the tenant is intended to have security of tenure
Not Protected – Contracting Out
The alternative for business leases is for the lease to be “contracted out” of the protection of the Landlord and Tenant Act 1954. This means that a prescribed procedure will be followed, to “contract out” the lease from having security of tenure.
If you are an agent, please do not attempt to run this procedure yourself. Whenever I have seen the procedure run by a non-lawyer, it is run incorrectly. If it is run incorrectly, it won’t protect your client, and you open yourself up to a potential negligence claim, or reputational damage.
This is not me blowing the trumpet of solicitors. Experience tells me from 16 years of seeing it done, that only solicitors actually get it right (and even some of them get it wrong). It is a technical procedure, involving serving the right notice on the right person, getting the right declaration and having the right wording in the lease. If you fail to do one of those things, then you don’t properly contract out the lease, and the tenant may have security of tenure. If this is important to the landlord, that could be a costly mistake.
- Notice served, with no declaration or statutory declaration sworn.
- Statutory declaration sworn with no actual content to the declaration.
- Wording in leases implying the continuance of the lease beyond the contractual term.
All of these will be fatal to the contracting out procedure. Avoid those mistakes, and get a solicitor to run it.
If you properly contract out a lease, it will not be a secure tenancy. Accordingly, it will end when the lease says it will end, and the tenant must leave at that point (unless it can negotiate a new contractual term from the landlord, which the landlord is under no obligation to offer).
“John McLean completed a new commercial lease for me. It could not be simpler to deal with him and all the advice and instructions were easy to understand. All the work was done electronically and this was the first time that I had done this but it was all straight forward. I would not hesitate to recommend John.”
Richard Kelham – Landlord
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Security of Tenure – Tips for Landlords
When your agent is drawing up Heads of Terms, you should spend some time on this issue. Have a think about:
- What are your plans for the property?
- If you own the property as an investment, and always envisage it being an investment (whether one own, or one you sell on), then granting security of tenure to your tenants may well be advantageous to you. It will make it a more attractive proposition to prospective tenants, because if they commit to the location, they know that they cannot easily be kicked out. This will more likely attract tenants looking for a long term future at the premises. It could help secure your rent roll.
- If you have plans to redevelop the property in the near to medium future, then you should strongly consider granting contracted out leases only. Although redevelopment is one of the grounds on which you can secure possession of a secure tenancy, it could involve the payment of compensation (of up to 2x ratable value to any secure tenant). If the tenant objects, it could involve a court case to remove them. Much easier to secure possession if you’ve only granted a contracted out tenancy.
- Similarly, if you plan to re-occupy the premises for your own purposes, or to knock it down, then again consider granting contracted out leases.
If you want to find out more, take a look at my page on Security of Tenure? for more information. The main thing is to think about things at HOT’s stage, and consider taking legal advice on those to help you navigate the pitfalls and speed up negotiation of the lease.
Security of Tenure – Tips for Tenants
You should pay attention to this when the Landlord’s agent is drawing up HOT’s. Have a think about:
- Many of my tenant clients do not understand what the terms mean when they “agree” to the HOT’s being given to them by the Landlord’s agent. This is one reason to employ an agent to agree HOT’s on your behalf (they’ll be able to add value in other ways too, by knowing the right rent, knowing what sort of rent-free period you should be getting etc).
- Ask your solicitor to review the HOT’s and advise as to to the meaning of everything. It will make negotiation of the lease much, much easier, if the HOT’s actually reflect what the parties have agreed (or the parties understand what they have agreed). This is why I’m so evangelical about HOT’s – if you get those right, the lease transaction will be done so much quicker, which everyone involved wants to happen.
- If you take on a 3 or 5 year lease, would you be happy to be forced to “up sticks” at the end of the 3 or 5 year term. This is the implication of accepting a “contracted out” lease. If you wouldn’t be happy, perhaps look for some premises where you can get security of tenure.
- Are you going to invest considerable capital sums fitting out (e.g. fixtures – ovens, kitchens, toilets etc). If you are going to be limited to your 3 or 5 year term, is that capital money well spent?
Give this issue thought at HOT’s stage, and you won’t be battling over it later down the line. It is a harder argument to win later on. Also, you may not want to pull out because you’ve invested in solicitors’ fees, or plans, or started ordering equipment.
Security of Tenure – Final Thoughts
There is lots to the topic of security of tenure, and the above is an overview only. Other important points are:
- Even if a tenant has security of tenure, it doesn’t mean they are impossible to remove. The Landlord and Tenant Act 1954 allows various grounds under which a lease renewal can be removed. There are “fault” grounds (e.g. non-payment of rent, or non-compliance with lease covenants) and “non-fault” grounds (e.g. redevelopment, possession for own purposes). Give me a shout on 01384 872069 if you are either trying to stay in premises, or wish to get rid of a tenant. I can put you in touch with expert litigators who will be able to sort this for you.
- Security of tenure only applies if certain conditions apply – e.g. that you have a lease, that it is occupied for business purposes etc. My page on What Is Security of Tenure? goes into this in more detail.
- Compensation is payable when evicting a tenant on “non-fault” grounds. This is payable at ratable value, unless the tenant has been in occupation for 14+ years, in which case it is 2x ratable value.
As always, if you have any queries, then do get in touch for a no-obligation, free, quotation via email@example.com or on 01384 872069 or via my Free Enquiry Form or Live Chat. I carry out all work through Nexa Law Limited, which is authorised and regulated by the SRA.
Thanks for reading my above article, and I look forward to seeing you on the next blog post!
Finally, the above article is for general information purposes only. I am not providing legal advice in the above and it may or may not be appropriate for your specific circumstances. If you require legal advice, please do get in touch and I will be delighted to assist.