Commercial-Property

When does the Landlord and Tenant Act (LTA) apply?

In order for the LTA to apply there must be a tenancy. The Act does not apply to licences. The tenant must be in occupation of the premises for the purposes of the tenant’s business and the tenancy must not be specifically excluded from the application of the LTA (see below).

When does the LTA not apply to a tenancy?

The LTA does not apply if:

  • The parties have properly excluded the LTA (see below),
  • The term granted is 6 months or less (unless the lease provides for renewal or extension of the term or the tenant’s total period of occupation (taking into account any previous occupation by the tenant or its predecessor in the same business) exceeds 12 months,
  • The grant and continuation of the tenancy is connected with the tenant’s employment,
  • The tenancy falls within certain categories of agricultural tenancy,
  • Other less common exceptions apply.

How can a tenancy protected by the LTA be brought to an end?

There are various ways in which an LTA protected tenancy can be brought to an end. They are as follows:

  • The landlord serves notice under section 25 of the Act, either offering or refusing to grant a new tenancy. The termination date for the tenancy specified in the section 25 notice must be a date not less than 6 months nor more than 12 months after the notice is served.
  • The tenant serves a request for a new tenancy under section 26 of the Act, to start from a
    date not less than 6 months nor more than 12 months after the making of the request.
  • The tenant gives 3 months’ notice of its intention to vacate the premises under section 27
    of the Act.
  • The tenant vacates the premises on or before the lease termination date.
  • The lease is surrendered or forfeit.

The termination/start date specified in a section 25 notice/section 26 request respectively must not terminate the existing tenancy before the expiry date stated in the lease, but it can terminate the tenancy on any date after that provided that the date falls 6-12 months after the date of service of the notice/request.

A section 27 notice cannot terminate the tenancy any earlier than the termination date specified in the lease, but it can be served after that date.

What is the next step for a tenant if a section 25 notice is served by the landlord?

A tenant no longer needs to serve any counter-notice to the landlord’s notice to inform
the landlord of its intentions concerning the premises. However, depending on the
circumstances, it is often helpful to discuss the position with the landlord and, if
appropriate, start negotiations for the new lease.

What is the next step if a section 26 request is served by the tenant?

There is no need for the landlord to serve a counter-notice if it is willing to grant a new
lease to the tenant, although it may be helpful to contact the tenant to start negotiations
for the new lease. However, if the landlord is opposed to the grant of new tenancy, it must serve a counter notice on the tenant within two months of the service of the section 26 request. The counter-notice must state the ground(s) on which a new tenancy will be opposed by the landlord.

What is the deadline for action after the service of a section 25 notice or section 26 request and any counter-notice?

In each case the deadline or “statutory period” is as follows:

  • Section 25 notice: the statutory period ends on the termination date for the tenancy specified in the notice.
  • Section 26 request: the statutory period ends on the date immediately before the date specified in the request as the date for the start of the new tenancy.

Application to Court

Both landlords and tenants can make an application to Court in relation to the tenancy.

  • The tenant can apply for the grant of a new tenancy. The landlord can either apply for the terms of the new tenancy to be determined or for the termination of the current tenancy if it has opposed the grant of a new tenancy. There are rules to prevent dual applications proceeding.
  • Where a section 26 request is served, neither party can make an application to court until 2 months after the service of the request unless the landlord serves a counter-notice. If a counter-notice is served, the application can then be made at any time up until the expiry of the “statutory period” (see above).

The parties are not entitled to make any application to the Court after the expiry of “the statutory period”. The tenancy will come to an end if no court application is made before the end of the statutory period.

Can the deadline for the Court application be extended?

The deadline for the Court application can be extended by agreement between the parties, provided that the agreement is made before the statutory period would otherwise expire

Further extensions of the statutory period can also be made by agreement between the parties, so as to facilitate progress of negotiations, provided that such agreements are reached before the end of the relevant existing extended period.

Who can apply for an interim rent?

Once a section 25 notice or section 26 request has been served, either the landlord or tenant can apply to the court for an interim rent to be determined, which is the rent payable until the start of the new lease.

What is the deadline for applying for an interim rent?

The application for an interim rent must be made not later than 6 months after the date for the termination of the tenancy as specified in the relevant notice. However, if the parties agree to extend the deadline for the substantive Court application (either for a new tenancy or for the termination of the tenancy), the deadline for the interim rent application will be similarly extended until 6 months after the revised deadline for the substantive Court application. If the substantive Court application is made, section 64 of the LTA operates to extend the termination of the tenancy until 3 months and 3 weeks after the application is finally disposed of.

If the LTA applies then the tenant will be entitled to a new lease unless the landlord can prove one of the grounds for recovering possession has been established.

The grounds are:-

  • Breach of repairing obligations.
    Persistent delays in paying rent
    Substantial breaches of other obligations in the lease.
    The Landlord can offer suitable and reasonable alternative accommodation.
    Where the lease is of part of the property only and the Landlord can obtain significantly more rent by letting the whole of the property as one unit.
    The Landlord intends to demolish or reconstruct the property and has to take vacant possession to do so.
    The Landlord intends to occupy the property himself for carrying on a business or as his residence.

Some of these grounds can be difficult to prove.

Contracting out of the LTA statutory right to lease renewal

The landlord and tenant can, in certain circumstances, agree to “contract out” of the provisions of the LTA, so that the tenant will not have the benefit of the statutory right to a lease renewal (section 38A(1), LTA). Whether or not the lease is contracted out of the LTA is a matter for commercial negotiation between the parties.

A tenancy protected by the LTA will not terminate at the end of the contractual term; it will continue under section 24(1) of the LTA until it is terminated in one of the ways specified by the LTA. In contrast, a contracted-out tenancy will come to an end on the contractual expiry date; no notice from the landlord is required. Any renewal of a contracted-out lease will be a matter of negotiation between the parties. The parties can, if they choose, include an option to renew in a lease that has been contracted out of the LTA.

If a tenant continues to occupy a property for business purposes after the expiry of a contracted-out lease, it could gain the protection of the LTA in certain circumstances.

Requirements to contract out

  • Lease term must be for a term of years certain.
    • A lease can only be validly contracted out of the LTA if the contractual term created will be for a “term of years certain” (section 38A(1), LTA).
    • A lease will be for a term of years certain if it can be predicted with certainty that the term will come to an end on a known date (subject to a right of re-entry or a break clause).
    • A lease will be for a term of years certain if:
      • Granted for a fixed term.
      • Granted for a fixed term with a break clause (whether landlord’s, tenant’s or
        both).

A lease will not be for a term certain if:

  • Granted for a fixed term and then from year to year.
    Granted for a fixed term, together with “any continuation, extension or holding over”. For a lease to be validly contracted out of the LTA the definition of the “term” must not include any reference to a continuation of the term.

A periodic tenancy cannot be contracted out of the provisions of the LTA.

Procedure for contracting out

Any agreement to contract out of the provisions of sections 24 to 28 of the LTA will be invalid unless the correct procedure is followed.

In simple terms the landlord must give advance written notice to the tenant and the tenant must make a formal declaration to acknowledge that he/she has understood the effect of contracting out.

The procedure must be followed strictly. If it is not then the lease will not validly be contracted out and the tenant will have the statutory renewal rights.

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