Here we look at Landlord’s section 25 notice to terminate a commercial lease. Before reading on, it is worth checking to make sure that your lease is not excluded from this applying, and that your lease is a tenancy as defined by the 1954 Act (the “Act”). Landlords often exclude leases from these provisions so that tenants don’t have as much protection. We’ll look at tenancies a little later.
The Section 25 notice
If a landlord wishes to end a commercial lease that has not been excluded from protection under the Act, the usual way to do so is by serving a section 25 notice on the tenant.
The notice must be in a prescribed form and must be given to the tenant between 6 and 12 months before the date that the landlord wishes to end the lease.
The notice will also need to state whether the landlord would oppose the tenant’s application for a new lease. That is, even on receiving the notice, the tenant has the right to apply to the Courts for a new lease, but this can be opposed by the landlord on one of seven grounds:
- Tenant’s failure to repair;
- Persistent delay in paying rent;
- Substantial breaches of other obligations;
- Alternative accommodation;
- Sub-letting of part where higher rent can be obtained by single letting of whole building
- The landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession; or
- Landlord’s intention to occupy the holding for his own business or as a residence.
The landlord is only able to rely on the ground that they specifically mention in the section 25 notice. However, commonly, landlords often use this process as an opportunity to end a lease and renegotiate terms for a new lease. If this is the case, the landlord should include the proposed terms of the new lease with the notice. It will then be for the tenant and landlord to negotiate the terms of the new lease.
In order to protect their position, a tenant should apply to the Court for a new lease before the expiration of the section 25 notice. If they do not, they will lose all of their rights as a tenant. However, in many circumstances, the parties will agree to the terms of a new lease before the matter reaches the Court steps and no longer require a hearing.
On the other hand, if the landlord has said that they wish to oppose the grant of a new lease, and are not prepared to enter into a new lease at all (despite negotiations), a tenant’s only chance of obtaining a new lease is to apply to the court. Alternatively, the landlord can pre-empt this by making an application to the Court to end the lease itself, but not if the tenant has already made the application.
What are my options as a tenant on receiving a section 25 notice?
- If the tenant does not wish to renew the lease then the answer is simple – do nothing and vacate the property by the termination date as set out in the section 25 notice.
- If the tenant wishes to renew the lease and the parties will reach agreement for terms of the lease before the expiration of the section 25 notice, then no further action is required (provided the new lease is completed by the required date).
- If the tenant wishes to renew the lease, the landlord will not oppose a new lease, but agreement to new lease terms will not be concluded before the expiration of the section 25 notice, the tenant should apply to the Court for a new lease before the expiration date. The Court will then help the parties agree to new lease terms if agreement has not been reached beforehand.
- If the tenant again, wishes to renew the lease, but the landlord will oppose a new lease, if the landlord has not already applied to the Court for the termination of the lease, the tenant should apply to the Court for a new lease before the expiration of the section 25 notice. The Court will then help decide how and if there should be a new lease granted.
What about rent and compensation?
If the tenant has applied to the Court for a new tenancy, the current tenancy will not end on the expiry of the section 25 notice, but will continue at the same rent until three months after the end of the Court proceedings. Either the landlord or the tenant can apply for an ‘interim rent’ to apply during this time.
In certain circumstances, compensation may be available if the tenant fails to obtain a new lease. We can advise you of this if you find yourself in this situation and whether you would be entitled to compensation.
The compensation available will be the equivalent sum to the rateable value of the property unless the tenant has been in the property for at least 14 years (in which case this amount is doubled).
If you are a commercial tenant or landlord and wish to discuss ending a tenancy, get in touch with us at email@example.com.