Section 24 of the Landlord and Tenant Act 1954 (hereinafter: “LTA 1954”) generally provides a security of tenure for business tenancies. This provides an automatic continuation of tenancies and does not allow tenancies to be terminated by effluxion of time or by landlord’s service of a notice to quit. The security of tenure and termination of business tenancy is a widely contested battleground for landlords and tenants and we see many litigation relating to business or commercial tenancies arising out of it. This article aims to provide a basic outline of the law that deals with termination of business tenancy that has security of tenure.
Section 24 of LTA 1954 (as amended) provides:
“24 Continuation of tenancies to which Part II applies and grant of new tenancies.
(1) A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance with the provisions of this Part of this Act; and, subject to the following provisions of this Act either the tenant or the landlord under such a tenancy may apply to the court for an order for the grant of a new tenancy—
(a) if the landlord has given notice under section 25 of this Act to terminate the tenancy, or
(b) if the tenant has made a request for a new tenancy in accordance with section 26 of this Act.
(2) The last foregoing subsection shall not prevent the coming to an end of a tenancy by notice to quit given by the tenant, by surrender or forfeiture, or by the forfeiture of a superior tenancy, unless—
(a) in the case of a notice to quit, the notice was given before the tenant had been in occupation in right of the tenancy for one month
Such tenancies could be terminated in two principal ways – (i) common law methods that are preserved by LTA 1954, and (ii) statutory methods provided by that Act.
The common law methods are – tenant’s notice to quit, surrender and forfeiture. A landlord can forfeit a business tenancy if the right of re-entry is preserved in the lease and if the tenant breaches a covenant of that lease which triggers the right of re-entry. Two common instances of this are when the tenant fails to pay the rent on time or when the he or she breaches a repair obligation.
The statutory methods of termination are provided at sections 25-29 of LTA 1954. These are as follows:
Section 25: landlord’s notice to terminate tenancy;
Section 26: tenant’s notice and/or application for a new tenancy;
Section 27: tenant’s notice to terminate tenancy;
Section 28: landlord and tenant’s agreement for a new tenancy; and
Section 29(2): landlord’s application for an order to terminate tenancy.
Section 25 Notice vs Section 26 Notice
If a landlord wants to terminate a business tenancy without renewal and if the preserved common law methods for termination do not apply, then he or she must serve a notice in accordance with section 25. This notice needs to be given in the prescribed form (Form 2) and must specify the ground or grounds as to why the landlord is opposed to a new tenancy. If the landlord is unsure as to whether sections 24-29 of LTA 1954 Act applies to a particular tenancy, he or she may serve a section 25 notice ‘without prejudice’ to his contention that the tenancy is not protected.
The timing of the section 25 notice is another factor. Section 25(2) provides, “a notice under this section shall not have effect unless it is given not more than twelve nor less than six months before the date of the termination specified therein”. This means that the notice can be given at the final year of a lease and landlords must wait for at least six months for the termination to take effect. The date of termination needs to be specified in the notice. This is very important, because in case of a premature date of termination the notice will be rendered invalid. The rule of thumb here is that the termination cannot be earlier than the date when the tenancy can be terminated at common law.
If a landlord cannot wait for a section 25 notice to expire (i.e. if he or she cannot wait for the minimum six-months period), then he or she can apply to the court for termination of the tenancy without renewal under section 29(2).
If, however, the tenant first serves the section 26 notice, then the landlord must serve a counter-notice pursuant to section 26(6), within two months from the date of the section 26 notice, that he or she will oppose an application to the court for the grant of a new tenancy. There is no prescribed form for a notice under section 26(6). If the landlord fails to serve this notice on the tenant within the two-months period, he or she will lose the right to oppose the tenant’s application for a new tenancy.
Grounds for opposing a new tenancy
For a notice under section 25 or 26(6), or an application under section 29(2), the landlord must rely on one or more of the grounds prescribed in section 30(1). These are as follows:
(a) tenant’s failure to comply with repair obligation;
(b) tenant’s persistent delay in paying rent;
(c) tenant’s substantial breaches of other obligations or use of the holding;
(d) suitable alternative accommodation available;
(e) landlord requires whole property for subsequent letting (rarely arises in practice – this applies for certain sub-tenancy scenarios);
(f) landlord intends to demolish or reconstruct the premises (requires real, fixed and settled intention); and
(g) landlord intends to occupy the holding (if he or he had held interest in the property for five years).
Out of these, grounds (a)-(c) and (e) are discretionary, whereas grounds (d), (f) and (g) are mandatory. This means, even after satisfying grounds (a)-(c) and (e), a landlord might not have his property back – it would rather be at the court’s discretion whether to grant or refuse a new tenancy. If any of the other three grounds are satisfied, then the court will refuse to order a grant of new tenancy.
Grounds (d), (e) and (f) need not be satisfied at the date when a section 25 or 26(6) notice expires. Section 30(2) provides a ‘second chance’ on these, i.e. if the landlord can show the court that he or she can satisfy any of these grounds within one year of the date of termination specified in the landlord’s notice then that would suffice.
Though one should note that, a landlord will be required to prove his or her case at the date of the hearing (Betty’s Cafés Ltd v Phillips Furnishing Stores Ltd). In this case the House of Lords suggested that the state of affairs must exist at the date of the hearing, as well as the date of serving a section 25 or 26(6) notice (barring the exception contained in section 30(2)). With regard to grounds (e)-(g), in Hough v Greathall Ltd the Court of Appeal however clarified that, at the date of the notice a landlord is not required to have in place all the elements that would enable him or her to prove the requisite intention at such time. It is at the hearing where the landlord must prove the intention.
Pursuant to section 37, tenants are entitled to compensation where grounds (e)-(g) are invoked. This is because, these are triggered not due to a default on the tenant’s part, and unlike ground (d) the tenant would suffer losses if a new tenancy is refused under grounds (e)-(g).
Ground (f) is one of the popular grounds relied upon by the landlords. For this to take effect the landlord must show more than just a vague desire to reconstruct or demolish the premises in question (Cunliffe v Goodman). The landlord does not need to show that all the arrangements for demolition or reconstruction have been made, but there may not be too many obstacles left (Gregson v Cyril Lord). If the landlord is seeking possession of the premises for reconstruction, that has to be of substantial nature. There needs to be substantial interference with the structure of the premises (see: Joel v Swaddle; Marazzi v Global Grange Ltd and Ivorygrove Ltd v Global Grange Ltd).
One or more grounds?
If a landlord states a ground in his notice or application which is inconsistent or which he or she is unable to prove, then he or she may be penalised in costs. Furthermore, as mentioned above, some of the grounds attracts compensation. Therefore, one ought to be careful not to put forward frivolous grounds.
On the contrary, one should keep in mind that landlords cannot amend the grounds stated in his or her notice. Hence, it may be prudent to rely upon all the applicable grounds despite the risk on costs and compensation.