#5251 - Business Tenancies - Landlord and Tenant Law

Business Tenancies

The principle piece of legislation to regulate business tenancies is the Landlord & Tenant Act 1954. This provides some protection for business tenants, but it is possible to contract out of the statutory protection and, in reality, the majority of tenancies contract out and this is normally only not done due to negligence or particular bargaining power of a tenant.

If the LTA 1954 applies then the tenant has the right to remain in occupation after the end of the contractual term and either party may then apply for the grant of a new lease or termination of the tenancy.

Scope of the LTA 1954

The Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purpose of a business carried on by him or for those and other purposes.

Tenancy

This will include both fixed term and periodic tenancies.

The tenancy must be a valid lease, satisfying the Street v. Mountford criteria (exclusive possession, for a fixed term, at a rent)

This includes a subtenant, even if they are in occupation unlawfully (D’Silva v. Lister Developments)

A tenancy at will does not count as a tenancy for the purpose of the LTA 1954 (Javad v. Aqil)

The House of Lords have explicitly said that tenancies at will are excluded (Wheeler v. Mercer)

Certain tenancies are explicitly excluded by the LTA 1954 s.43: agricultural tenancies or mining leases; service tenancies; any tenancy for a fixed term of less than 6 months unless the tenant has been in occupation for more than 12 months or there is a provision to extend the lease beyond 6 months

Property

The property must be an estate in land. It cannot be a business tenancy of an incorporeal hereditament (Basildon)

Premises

Premises is widely defined and need not be a building or structure

Racehorse paddocks can be premises (Bracey v. Read)

A public open space can be premises (Wandsworth LBC v. Singh)

Occupied by the tenant

Any part of the original tenancy which is not occupied by the tenant or his employee for the purposes of a business will not be included in a new lease under the LTA (LTA 1954 s.23(3))

Occupation generally means an ability to exclude others from the property and to use it according to your designs. One cannot continue to occupy the property if he hallows another party to use it as premises to operate their own business (Lord Nicholls in Graysim v. P&O Property)

A tenant who leases a market hall, and then sublets units of that to traders was not in occupation and so not protected by LTA 1954 (Graysim v. P&O Property)

It is possible to occupy open land (Bracey v. Read)

A tenant of a farmhouse and outbuildings, who sublet the outbuildings for industrial use, was given protection for the entire tenancy in William Boyer. But Lord Nicholls said that this was wrong in Graysim, the protection should not have been granted over the outbuildings.

If the tenant vacates the premises during the term of the original tenancy then any potential protection expires if the tenant is not in occupation on the end date of the contractual tenancy. But they could go away and come back provided they have re-established occupation prior to the end of the tenancy (Esselte v. Pearl Assurance)

Occupied for the purpose of business

Business includes a trade, profession or employment and includes any activity carried on by a body of persons whether corporate or unincorporated (LTA 1954 s.23(2))

Management of a hospital can be a business purpose (Hills (Patents))

Running a Sunday school is not a business purpose. This was a use of spare time and such things will only be a business purpose if they have direct commercial involvement (Abernethie)

Running a tennis club is a business purpose, as it was an activity run by a body of persons (Crabbe)

Having lodgers for minimal rent was not a business purpose. Taking in lodgers could be a business purpose, if there were many rooms in a house all being let out, with the tenant living in the basement and making a profit. But with each only paying minimal weekly amount it was not a business purpose. (Waller LJ in Lewis v. Weldcrest)

Change of use can cause potential problems. LTA 1954 concerns the current user. But the HA 1989 concerns the initial state of affairs. Consequently if a tenancy transfers from business to residential purposes midway through the tenancy it will lose its LTA 1954 protection and not become protected under HA 1989.

Where a property is used for business and residential purposes then it will be a business tenancy unless the business use is merely incidental to the residential use e.g. occasionally doing some work at home. Also if a house is split up so part is residential and part is business then it will become completely a business tenancy unless the landlord grants a new residential tenancy over that part (Lord Denning in Cheryl Investments)

Until the tenant actually uses the property for business purposes it is not so used and so not a business tenancy. Only when it is actually used will it lose residential protection (Grant)

Carried on by him

The business will be deemed to be carried out by the tenant if it is carried out: by a company in which the tenant has a controlling interest OR where the tenant is a company then by a person with a controlling interest in the company (LTA 1954 s.23(1A))

Exclusions from the LTA 1954

1. Business in breach of covenant

If there has been a breach of covenant then the protection will not apply unless the landlord or his predecessor in title has consented or acquiesced to the breach (LTA 1954 s.23(4))

Statute continues all of the obligations and covenants in the contractual tenancy is it continues as a statutory tenancy.

Fell was an odd case where the contract was held to prevent the terms extending beyond the contractual period due to clear drafting. But this has now been overruled by statute.

If the Act applies to a tenancy then it will not come to an end unless terminated in accordance with the Act. This means that it is not in fact a statutory tenancy, according to Dixon, but it is an extension of the contractual tenancy by statute.

2. S.43 of the LTA 1954 contains particular exclusions

Agricultural tenancies or mining leases; service tenancies; any tenancy for a fixed term of less than 6 months unless the tenant has been in occupation for more than 12 months or there is a provision to extend the lease beyond 6 months are all excluded

Contracting out of the LTA 1954

The landlord and tenant may agree that the business tenancy protection shall not apply for their tenancy. They may further agree that possession shall be surrendered on a particular date or in specified circumstances. But the proper formalities must be complied with for these agreements to be effective (LTA 1954 s.38A (1)-(4))

For LTA 1954 s.38A to apply the tenancy must be for a term of years certain.

A 12 month lease which would continue from year to year and be terminable on 12 months notice was not a lease for a term of years certain (Nicholls v. Kinsey)

The presence of a break clause in the agreement does not prevent it from being for a term of years certain (MPD v. Palacegate Properties)

The courts have shown a willingness to adopt a relatively flexible attitude to the formalities. But only where non compliance is more favourable to the tenant/provides more protection for the tenant (Chiltern Railway v. Patel)

The scheme of protection

Continuation of the tenancy

s.24 of LTA 1954

A tenancy to which the Act applies shall not come to an end unless terminated in accordance with the provisions of the Act (LTA 1954 s.24(1))

LTA 1954 s.24(1) shall not prevent a tenancy coming to an end by notice to quit given by the tenant unless the notice was given before the tenant has been in occupation for one month (LTA 1954 s.24(2))

The continuation tenancy is the same tenancy which the tenant had at common law (Bowes Lyon v. Green)

This means that the tenant remains liable under all of the covenants, and for rent, according to the original tenancy.

If the tenant has ceased to occupy for the purposes of his business prior to the expiry of the contractual term then the tenancy will expire at the end of the contractual period and will not be continued by statute (Esselte v. Pearl Assurance)

If a tenancy has expired due to the effluction of time then there is no continuation of the tenancy under LTA 1954 s.24 and so the tenant was not liable for the rent, applying Esselte v. Pearl Assurance (Surrey v. Single Horse)

s.25 of LTA, Termination notice by landlord

The landlord may terminate the tenancy by a notice to the tenant, in the prescribed form, specifying the date on which the tenancy is to come to an end (LTA 1954 s.25(1))

It has been accepted that a form of notice that is of substantially the same effect will still be ok. The notice must cover the essential matters.

Generally the landlord is not able to give notice more that 12 months before the proposed date of termination, or less than 6 months before that date (LTA 1954 s.25(2))

The landlord may not use a s.25 notice to terminate the tenancy prior to the common law date at which it could be done (LTA 1954 s.25(3)(a))

There is a 6 month maximum notice requirement (LTA 1954 s.25(3)(b))

The landlord may not use a s.25 notice to terminate the tenancy before the contractual end date (LTA 1954 s.25(4))

There are 2 forms of a s.25 notice: a notice opposing or a notice unopposing.

A notice opposing – the landlord does not want to grant a new tenancy. This must be made clear in the notice, as must...