Security of tenure
Regulatory Reform Order 2003
Introduction
New procedures for terminating or renewing business tenancies where introduced by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (the Order). The Order had effect on 1st June 2004. The main purpose of the Landlord & Tenant Act 1954 Part 2 has not changed; however, the Order has introduced a number of small procedural changes and time limits to deal with security of tenure.
This article will be useful reading to landlords, tenants and professional advisors.
Review: the main changes are:
Contracting Out
- It will no longer be necessary to obtain a court order to exclude the security of tenure provisions in the Act.
- Instead, landlords must serve a notice on the prospective tenant at least 14 days before the lease is executed, warning that there will be no security of tenure.
- The 14 day period can be waived, but the prospective tenant will need to complete a statutory declaration indicating that the warning has been received and is accepted.
Lease Renewal
- If a landlord is not opposing the grant of a new lease, the Section 25 Notice which is served by the landlord at the end of the tenancy, or the landlord’s Counter notice to a Section 26 Request for a New Tenancy must set out the landlord’s proposed terms for the new lease, including the details of security of tenure.
- Tenants will no longer be required to serve a Counter notice in response to a Section 25 Notice served by their landlord.
- The strict 2-4 month time limits for responding to service of notices will be abolished and the parties will be able to agree a deadline for making an application to the court for a new lease.
- Landlords, as well as tenants, will be able to apply to the court for the lease renewal proceedings to commence.
- Tenants, and not just landlords, will be entitled to apply for an interim rent during the proceedings. (They may wish to do this where their rent is higher than the current market rent.)
- The maximum term for a new lease will be increased from 14 to 15 years.
Excluding security of tenure
Excluding security of tenure used to be a laborious task, achieved by joint court application. With the new procedure the landlord must serve a notice on the tenant at least 14 days before the proposed tenancy is entered into or before there is a binding lease agreement. All the tenant needs is to make a simple declaration to say he has received and read the warning notice from the landlord and has accepted the consequences of entering into a lease agreement which includes a provision to exclude security of tenure.
This simple form does not need to be sworn before a solicitor nor does it need to be witnessed.
The lease must contain a reference to the warning notice issued by the landlord, preferably within a schedule. Similarly the declaration by the tenant should be included in a second schedule. The procedure must be performed correctly otherwise the tenant will have security of tenure.
If the parties are unable to give a notice period of at least 14 days, the tenant must swear a statutory declaration in the presence of an independent solicitor. This replaces the simple declaration.
Potential Problems
· Cooling off period - the declaration is only valid if it has been completed within a minimum of 14 days between the date the notice is served and the date of the lease agreement. Net Lawman advises to keep a copy of the landlords notice and evidence of its date of service, a copy of the tenant’s declaration and to attach a copy of the lease agreement to the landlords notice to show that the tenancy has not changed after the notice has been served.
· Term of commencement date – the tenant’s declaration (whichever method is used) must state the commencement date of the lease. Sometimes this is not known until the grant of the lease. Solicitors will therefore have to draft provisions to avoid the possibility of granting leases with protection, perhaps by granting licenses for occupation while the notice and declarations are completed.
Termination of Tenancies
The new order introduces more flexibility for the tenant, especially in terminating if they do not wish to review.
The simplest procedure for termination is clarified in the new Section 27 (1A). The tenant can now give up occupation before the expiry of the contractual term without being liable for rent after the term end. In order for this to work it is essential that the tenant does not remain in the premises at the expiry of the contractual term.
Mostly, a tenant is able to give excess of three months notice to a landlord if they do not wish to continue the agreement. Notice is therefore served under Section 27(1). There is then no risk of the tenancy continuing. However, unlike the Section 27 (1A) method described above, with Section 27 (1), the notice cannot be served if the tenant has requested a new tenancy using Section 28.
If there is less than three months until the end of the lease agreement and the tenant decides they want to terminate the lease, they can still serve notice by under a new procedure outlined in Section 27(2). The tenant still gives three months notice, which expires after the contractual term end. The tenancy will therefore end on the date stated in the notice.
Tenants therefore benefit from the increased flexibility regards business leases.
Summary and example situations for landlords
1) You have a new lease and would like to exclude security of tenure:
- complete a section 25 notice and give it to the tenant at least 14 days before you propose to enter into the agreement.
- ensure the tenant makes a declaration in writing to say that he has accepted the consequences of entering into a lease agreement which includes a provision to exclude security of tenure.
- sign the lease fourteen days or more later.
- ensure that the section 25 notice and the tenant’s declaration are included in the lease by including them in a schedule.
- Use a Net Lawman lease to be sure that the
correct words are in place!
2) The lease is about to expire, you are happy with the tenant and you would like to continue:
- serve a section 25 notice at the end of the tenancy, or counter / accept the notice to a Section 26 Request (made by the tenant) for a new tenancy.
- ensure the section 25 notice sets out your proposed terms for the new lease including whether you are excluding security of tenure or not.
- apply to the court for the lease renewal proceedings to commence.
- apply for an interim rent during the proceedings. (You may only want to do this where the rent is higher than the current market rent.)
3) The lease is about to expire, you are not happy about the tenant. You would like to discontinue the lease:
- Surrender the lease using the prescribed form, or, if the tenant would like to continue and has served a section 26 request, do not counter their section 26 request.
Summary and example situations for tenants
4) You have a new lease and would like to exclude security of tenure:
- ensure your landlord completes a section 25 notice and gives it to you at least 14 days before you propose to enter into the agreement.
- make a declaration in writing to say that you have accepted the consequences of entering into a lease agreement which includes a provision to exclude security of tenure.
- sign the lease after fourteen days or more.
- ensure that the section 25 notice and your declaration are included in the lease by including them in a schedule.
5) The lease is about to expire, you are happy with the premises and you would like to continue:
- serve section 26 request for a new tenancy.
- the landlord will then counter your request (or not)
- if he counters the request, apply to the court for the lease renewal proceedings to commence.
6) The lease is about to expire, you are not happy with the premises. You would like to discontinue the lease:
- serve a section 26 request
- wait for the landlord to counter the request
Relevant Net Lawman document: