What is an Excluded Tenancy?

On this page, I aim to answer the question “What is an Excluded Tenancy?”.

An excluded tenancy is a business lease that does not have the protection of the Landlord and Tenant Act 1954. In broad terms, that act protects business tenants from eviction. It allows them to remain in occupation following the expiry of their contractual lease term. It also allows them to require a new lease from the landlord, unless the landlord can prove certain grounds for termination of the lease. There are various conditions to be satisfied, but basically it provides security of tenure. See my page Leases | What Is Security of Tenure? to find out more detail on that.

An excluded tenancy benefits from none of that protection – it is not a secure tenancy. This means that the lease will expire when the contractual term ends. There are no rights to extend it and the tenant will need to vacate on lease expiry (unless a new contractual term can be agreed with the landlord).

Different Names for an Excluded Tenancy

You might see an excluded tenancy called all sorts of things. They can be called:

• “excluded tenancy”;
• “lease outside the protection of the Landlord and Tenant Act 1954”;
• “contracted out lease”;
• “outside the Landlord and Tenant Act 1954”;
• “outside the Act”;
• “contracted out of the Landlord and Tenant Act 1954”, and so on.

All of these phrases mean the same thing – that the lease does not have security of tenure.

How is a Lease Excluded?

In order for a commercial Lease to be excluded from the protection of the Landlord and Tenant Act 1954 (“LTA 1954”), a strict procedure must be followed.

First, a warning. This guide is a basic overview only. You must take legal advice before attempting to follow this procedure. There are plenty of technical details to get right (for example, a periodic tenancy – running from year to year, or month to month – cannot be contracted out) that I haven’t covered in detail here. Give me a ring on 01384 872069 and I can chat it through with you.

Step 1: Notice

Firstly, the correct notice must be served on the tenant by the landlord. This is prescribed by statute in The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 . The safest method is to use this notice in its unedited form.

Step 2: Declaration or Statutory Declaration

Next, there are two options: simple declaration and statutory declaration. The simple declaration requires a 14-day gap between the service of the notice and the completion of the lease. It is not often used, due to potential issues with knowing when the 14 day window begins and ends, or simply because the parties do not want to wait 2 weeks for occupation to begin.

The statutory declaration allows the 14 day window to be accelerated, but must be sworn by the tenant in front of an independent solicitor. This is a relatively simple process to arrange – the tenant can telephone any local solicitor and ask to “swear a statutory declaration”. The cost is fixed at £5 by the law, and it takes about 5 minutes.

Step 3: Endorsement on the Lease

As well as the notice and declaration or statutory declaration procedure, there must also be specific wording in the lease. This is the contracting out clause. This must contain:

• A reference to the landlord’s warning notice;
• A reference to the tenant’s declaration or statutory declaration; and
• The parties’ agreement that Sections 24-28 LTA 1954 are to be excluded from the lease.

It is important that this endorsement is included. It is also important that the lease does not include provisions which indicate it may continue beyond the end of the contractual term. These can undermine an effective exclusion.

Exclusions

It is important to remember that certain types of leases are excluded from the protection of the LTA 1954 anyway, for example:

• Agricultural holdings;
• Mining leases;
• Service tenancies;
• Farm business tenancies; and
• Electronic Communications agreements.

These types of leases often have their own types of “protection”. For example, Electronic Communications equipment may be protected by the Electronic Communications Code. They will need specialist advice to get right.

Also, business leases for a fixed term of 6 months or less are also excluded. However, once the tenant has been in occupation for over 12 months, this exclusion will cease to apply.

Sounds straightforward…Can I carry out the exclusion procedure myself?

No. Don’t do this.

This isn’t me simply trying to drum up business as a solicitor. This is me saying I’ve seen people try and do it themselves, and they always get it wrong. Commercial Property agents, yes, I’m also talking to you,

It is a technical procedure. One wrong move, one missing element, and you have failed to correctly exclude the lease. Your tenant (or your client’s tenant) will then have security of tenure, which might mess up your plans for redevelopment, or plans to let to a bigger tenant in the future. Say you mess up a lease of part – you’ve now prevented that lease of whole you were hoping to do next year, because the “temporary” tenant of part now has protection.

There are too many things that can go wrong:

• I’ve seen the wrong notice used (the act contains several, for different scenarios).
• There’s been “statutory declarations” that include the swearing bit, but not the actual declaration (a bit like saying “I promise” without detailing what you are promising).
• I’ve seen correct notices and declarations, but no endorsement in the lease.
• I’ve had staff signing declarations, with no actual authority to bind the tenant.

The above can only ever be general guidance only. There is plenty of detail I cannot cover in a summary like this. To get this right, you really need to speak to an expert. For a free, no obligation chat, please contact me using any of the following methods:

• Call by ringing 01384 872069 – speak to my New Enquiry Team now
• Email me at enquiries@mcleanlegal.co.uk
• Fill in the Contact Form on my website www.mcleanlegal.co.uk
• Meet Me at Suite 2, 83 High Street, Kinver, Staffordshire DY7 6HD – by appointment only

Lines and chat are open 24/7 and 365 days a year – contact my New Enquiry Team today!

Client Review

“John acted for me on a new lease of an office at my business premises. John acted swiftly and effectively to get the new tenant in as quickly as possible. I have been very happy with his service, and am happy to recommend him for commercial property leases.”

Nicholas Favel – Director, Favell’s Garage Ltd

What is an Excluded Tenancy – a Tenant’s Perspective

If you are being offered an excluded tenancy, you need to know what this means for your business. It means that your right to occupy the premises ends when the lease says it will end. If you have a 3 year lease, you have 3 years. If you have a 1 year lease, you have 1 year. And so on.

You will have no right to hold over at the end of the term, and no right to a new lease.

You should view the premises as a relatively temporary arrangement – you are not setting up a permanent business home with an excluded tenancy.

What is an Excluded Tenancy – a Landlord’s Perspective

There a number of reasons why you might not want tenants to have security of tenure:

• You might have plans to occupy the premises yourself in the future, in which case you want to be sure you can remove the tenant when you need to.
• If you are seeking to redevelop the premises, and are just granting a lease to gather some cash in the meantime, you should be contracting out your leases. Even though there are grounds to object to a lease renewal under the LTA 1954 for redevelopment, much easier to simply refuse a renewal of a contracted out lease.
• You might be struggling to lease the whole premises, but someone has expressed interest in a room or two. You would want to contract out the lease of part, just in case your dream tenant comes along for the whole later down the line and you want to be sure you can get them out.

Be careful though. Tenants may see an excluded tenancy as a less attractive option than a secure tenancy. It means they can’t really put down roots, and grow their business from your premises for the long term. It may mean you can’t command such a high rent. If you have the premises as an investment, to be occupied, then you may not need the flexibility that contracting out gives you, and you may be happy to grant protected tenancies to attract a more stable tenant and command a higher rent (NB I’m not a valuer, so speak to a valuer about the impact on rents of excluded vs protected tenancies).

John McLean Commercial Property Solicitor

I’ve done countless leases over the 16 years I’ve been practising as a Commercial Property Solicitor:

• Acting for tenants taking contacted out leases and protected leases.
• Acting for a landowner selling for development, but wishing to keep income flowing by granting contacted out leases.
• Acting for landlords wishing to exclude security of tenure.

Contact Me

If you would like to have a further chat about any of the above, or ask me to give you a quotation, please give me a call or contact me.  For a free, no-obligation discussion you can:

• Call by ringing 01384 872069 – speak to my New Enquiry Team now
• Email me at enquiries@mcleanlegal.co.uk
• Fill in the Contact Form on my website www.mcleanlegal.co.uk
• Meet Me at Suite 2, 83 High Street, Kinver, Stourbridge, Staffordshire DY7 6HD – by appointment only

Lines and chat are open 24/7 and 365 days a year – contact my New Enquiry Team today!

I typically respond to enquiries within 24 hours.  Just let me know when you contact me which is your preferred means of contact.

If instructed, all work is carried out through Nexa Law Limited, who carry all the necessary professional indemnity insurance and infrastructure to ensure that your transaction is handled safely and securely.  You can find out more detail about Nexa here.

You won’t find yourself dealing with a more junior solicitor, or a paralegal – all work is carried out by me, so you have an experienced pair of hands at all times, and a single point of contact.

If you have any further queries, please do not hesitate to contact me.

The Legal Bit

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.  This is particularly true re the Landlord and Tenant Act 1954, on which there is acres of case law, and many nuances. If you require legal advice, please do get in touch at enquiries@mcleanlegal.co.uk and I will be delighted to assist.