Security of tenure is the statutory right under Part II of the Landlord & Tenant Act 1954 for a tenant to remain in a property when their lease term ends, unless the landlord can satisfy one of few limited grounds to evict them (and even if they can, they may be required to financially compensate the tenant). A lease granted with security of tenure is commonly known as a “protected lease”. This protection can be excluded provided that the correct legal procedure is followed before the lease is completed – a procedure known as “contracting out”. Granting a tenant security of tenure can mean that a landlord will lose future flexibility and control over their property as the tenant will have the right to request a new lease on the same or very similar terms as the old one. Security of tenure can also significantly limit the landlord’s ability to negotiate more favourable lease renewal terms including rent increases.
Security of tenure provides a tenant with stability and business continuity but it is essential that a landlord considers how this could impact their future plans for the property. Does the landlord anticipate a need to sell, re-let or re-develop the property without restriction in the future?
In order to ensure that a lease is not granted with security of tenure, a formal “contracting out” procedure must be followed before the lease is completed whereby a notice is served on the tenant and the tenant signs a declaration agreeing to waive their statutory right of security. There are particular timescales which must be adhered to. If the correct procedure is not followed, the “contracting out” procedure could be deemed invalid and a landlord may find themselves inadvertently granting security of tenure.
Landlords are advised to consider their long-term plans for their property and to seek legal advice early on in negotiations with prospective new tenants. The law regarding security of tenure can be daunting but our commercial team at Mowll & Mowll can advise both landlords and tenants on the implications of entering into a lease with or without security of tenure. With preparation and the right advice, a landlord can enjoy the income and maintenance benefits of a commercial tenant whilst retaining future flexibility and control over their property.