Lease Termination
Scenarios
Where a
property is occupied by a tenant for business purposes than it does not
automatically come to an end simply by reason of the original term of the lease
expiring. Instead it continues by operation of the law – this is generally
described as ‘holding over’. Once in the period of ‘holding over’ it can only be
terminated by one of the procedures laid down in the Landlord and Tenant Act
1954. The information in this page deals with some examples of situations that
may arise.
_______________
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Property occupied by a tenant for business purposes
-
Lease
not contracted out
-
Tenant
wishes to leave at expiry of contractual term
If in this
scenario the tenant wishes to leave at the end of the fixed term he needs to
ensure that there is no period of holding over. There are two ways in which he
can do this
The first is
to make sure that he has vacated the property by the end of the contractual
term. If this is done then the argument is that as he is no longer in occupation,
then the lease no longer carries security of tenure and as such no question of
holding over can arise. There have been various cases over the years questioning
the validity of this argument though it is now accepted as good law and indeed
confirmed by statute.
The problem
with this approach is that, for whatever reason, the tenant may be delayed in
vacating or may slightly miscalculate the termination date so that he ends up
still being in occupation at expiry of the lease. Further there is always the
worry that the tenant may not completely remove all his stock or equipment from
the property and then the landlord may claim he has not properly vacated. If the
tenant is still occupying at expiry of the lease term then the lease will be
continued by operation of the law and the tenant will then have to follow a
statutory procedure to bring it to an end – giving at least 3 months notice.
The second
option is to serve on the landlord a notice under section 27 of the Landlord and
Tenant Act 1954 at least 3 months before the contractual term expires. This is
the safest way to end the term on the contractual expiry date because the notice
serves to terminate the tenancy and so the tenant will have no continuing right
of occupation – thus if the tenant is a few days late leaving it will not have
the effect of automatically continuing the tenancy.
_______________
-
Property occupied by a tenant for business purposes
-
Lease
contracted out
-
Tenant
wishes to leave at expiry of contractual term
In
this case there is no security of tenure and so there is no question of a
continuation tenancy being automatically created. No notice is required and the
tenant can just leave on the expiry of the lease term. If the tenant remains in
occupation at expiry of the fixed term then it does not automatically extend the
lease – though a new periodic tenancy may be created depending on the
circumstances
______________
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Property occupied by a tenant for business purposes
-
Lease
not contracted out
-
Fixed
term has expired – tenant now holding over but wishing to leave
The tenant
must give the landlord at least 3 months notice under Section 27 Landlord and
Tenant Act 1954. There was a time when the notice had to expire on a quarter day
(which meant that in some cases almost 6 months notice had to be give) though
this was changed by the Regulatory Reform (Business Tenancies) (England and
Wales) Order 2003 which came into force on 1st June 2004 – this provided that
the 3 months notice can expire at any time (but not before expiry of the fixed
term)
There
is no particular form of notice prescribed by the legislation
_______________
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Property occupied by a tenant for business purposes
-
Lease
not contracted out
-
Tenant
wishes to have a new lease
The tenant
can serve a notice on the landlord under Section 26 of the Landlord and Tenant
Act 1954 which specifies a date for the commencement of a new tenancy of not
more than 12 months nor less than 6 months after the date of service of the
notice but in any event not earlier than the expiry of the contractual term of
the tenancy. In this notice the tenant will request the landlord grant it a new
lease – the notice must set out the terms that the tenant proposes for the new
lease.
If the landlord wishes to
oppose the grant of a new lease then it must serve on the tenant a counter
notice within two months of the making of the Section 26 request. The counter
notice must state upon which grounds the landlord would object to the grant of a
new tenancy. There are only certain specific grounds upon which the landlord can
object to a new lease. The exact wording of these grounds are set out in Section
30(1) of Landlord and Tenant Act 1954 and are reproduced in full in the body of
the Section 26 request. In summary they are –
|
(a) |
The
tenant has failed to comply with his repairing obligations under the present
lease. |
|
(b) |
The
tenant has been persistently late in paying rent, which has become due. |
|
(c) |
There is
some other substantial breach by the tenant of the terms of the existing
lease |
|
(d) |
That the
landlord is willing to provide suitable alterative premises |
|
(e) |
The
current lease is a sublease of part and the landlord would be able to obtain
a better rent for the letting the whole building as one rather than the sum
of the parts |
|
(f) |
The landlord
intends to demolish or reconstruct the premises in such a way that it could
not be done with the tenant in occupation. |
|
(g) |
The
landlord intends to occupy the premises for his own business, or as his
residence. |
If the landlord relies
on grounds (e) (f) or (g) then he will have to pay the tenant compensation
if he is successful in opposing the grant of a new lease. There is no particular
form of counter-notice prescribed by legislation – though it is essential that
it specifies those grounds that the landlord intends to rely on – the landlord
cannot later rely on grounds that are not specified.
The tenant must then make an
application to the court for a new tenancy before the date it specified in the
Section 26 notice. The landlord and the tenant can however agree to extend the
date. If they do this then the existing tenancy is automatically extended during
that period. If the tenant fails to make the application to the court then the
lease will terminate and his rights to apply for a new tenancy will be lost. If
an application is made to the court then the court can determine the terms of
the new lease – within certain parameters
_______________
-
Property occupied by a tenant for business purposes
-
Lease
not contracted out
-
Landlord wishes to terminate current lease and oppose the grant of a new one
The landlord
can serve a notice under Section 25 of the Landlord and Tenant Act 1954 on the
tenant specifying a termination date of not more than 12 months nor less than 6
months from the date of service and in any event the specified date must be not
earlier than the expiry date of the initial fixed term of the lease.
In the
notice the landlord must specify the reason(s) he objects to a new tenancy being
granted. He can only do so on certain specified grounds. The exact wording of
these grounds are set out in Section 30(1) of Landlord and Tenant Act 1954 and
are reproduced in full in the body of the Section 25 request. In summary they
are –
|
(a) |
The
tenant has failed to comply with his repairing obligations under the present
lease. |
|
(b) |
the
tenant has been persistently late in paying rent which has become due. |
|
(c) |
There is
some other substantial breach by the tenant of the terms of the existing
lease |
|
(d) |
That the
landlord is willing to provide suitable alterative premises |
|
(e) |
The
current lease is a sublease of part and the landlord would be able to obtain
a better rent for the letting the whole building as one rather than the sum
of the parts |
|
(f) |
The landlord
intends to demolish or reconstruct the premises in such a way that it could
not be done with the tenant in occupation. |
|
(g) |
the
landlord intends to occupy the premises for his own business, or as his
residence. |
If the landlord relies on
grounds (e) (f) or (g) then he will have to pay the tenant compensation if he
is successful.
The tenant then needs
to make an application to the court for a new tenancy before the termination
date specified in the Section 25 notice. The landlord and the tenant can agree
to extend this deadline. If they do agree to extend it then the tenancy is
automatically extended to cover that period. If the tenant fails to make the
application to the court then the tenants right to a new lease will be lost.
_______________
-
Property occupied by a tenant for business purposes
-
Lease
not contracted out
-
Landlord wishes to terminate current lease and grant a new one to the tenant
The landlord can serve a notice under Section 25 Landlord and
Tenant Act 1954 to terminate the current tenancy. Again this must specify a
termination date not earlier than 6 months nor longer than 12 months after the
date of service and in any event not earlier than the expiry of the contractual
term. The notice will state that the landlord would not object if the tenant
made an application for a new tenancy. The landlord must include in the notice
proposals for a new tenancy. These are not intended as binding – they are just
proposals upon which negotiations can be based
If terms are not agreed by negotiation then either
party can make an application to the court before the termination date specified
in the notice.
Below is a summary of forms mentioned in this page - click on
the 'Purchase this document' button next to the form you
want and it can be purchased for £5
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Form 1 Section 25 Notice
(the wording of this form is prescribed by statute)
|
 |
Notice served by landlord
on tenant to terminate tenancy where the landlord would not oppose the grant
of a new tenancy |
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Form 2 Section 25 Notice
(the wording of this form is prescribed by statute)
|
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Notice served by landlord
on tenant to terminate tenancy where the landlord would oppose the grant of
a new tenancy |
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Form 3 Section 26 Notice
(the wording of this form is prescribed by statute)
|
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Notice served by tenant
on landlord requesting a new tenancy |
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Section 27(1) Notice |
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Notice served by tenant
on landlord to prevent fixed term tenancy continuing after expiry date
|
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Section 27(2) Notice |
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Notice served by tenant
on landlord to bring to an end a period of holding over
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Landlords Counter notice |
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Counter notice to be
served by landlord on tenant in response to tenants Section 26 Notice |
The
documents available on this site have been prepared for use in England &
Wales. They may not be valid if used in other areas.
