What are the options available to a landlord when an existing tenancy has come to an end? 

When an existing lease comes to an end there are essentially two options available to the landlord. The landlord may either ask the tenant to leave or offer the tenant a new tenancy. Whether the existing tenancy is contracted outside or contracted inside the provisions of the Landlord and Tenant Act 1954 (1954 Act) will impact on the options open to the landlord.

Asking a tenant to leave

The tenancy is ‘contracted outside’ the 1954 Act

A tenancy which is contracted outside of the 1954 Act has no statutory right to remain or renew their lease. Such tenancies require the tenant to leave on the end date of the tenancy. With a contracted out tenancy a landlord need not give any reason for asking the premises to be returned. The tenant is not entitled to any compensation, and the tenant cannot challenge the landlord’s decision. There is no requirement to give notice to end the tenancy but good practice dictates that the landlord gives 3-6 months’ notice to make the exit easier.

The tenancy is ‘contracted inside’ the 1954 Act

By contrast, a tenancy which is ‘contracted inside’ the 1954 Act gives the tenant certain statutory rights to remain on the premises and renew their lease in certain circumstances. The landlord can refuse to renew a tenancy inside the act on limited grounds. These limited grounds are known as the s.30 grounds and include:

• disrepair;
• persistent delays in the payment of rent;
• breaches of other terms of the existing tenancy;
• suitable alternative accommodation;
• the tenancy was created by a sub-letting;
• the redevelopment ground;
• the landlord to occupy for its own business or residence.

If one of the s.30 grounds exists the landlord can serve a notice refusing to renew the tenancy. However, some of those grounds trigger a compensatory payment to the tenant.

Compensation

If the landlord refuses a new tenancy on ground (e), ground (f), or ground (g) then the tenant will be entitled to compensation. Compensation is based on the rateable value of the property and would either be one times the rateable value or two times the rateable value depending on the length of occupation.

Asking a tenant to stay

The tenancy is ‘contracted out’ the 1954 Act

If the existing tenancy is ‘contracted outside’ then it is at the landlord’s sole discretion whether to offer a new tenancy. In addition, the landlord has sole discretion on the terms on which that tenancy is offered. The landlord is recommended to offer any proposals for a new tenancy before the expiry of the existing tenancy.

The landlord should be wary of allowing a tenant to stay in the premises and accepting rent where the end date of the tenancy has passed. The landlord may inadvertently create a new lease which is contracted inside the act giving the tenant the statutory protection they avoided by contracting out in the first place. Be sure to formalise any stay beyond the end date with a written tenancy of some kind contracted out where applicable.

The tenancy is ‘contracted inside’ the 1954 Act

Voluntary negotiations

Voluntary negotiations are not compulsory but should be considered. The parties can simply agree terms for a renewal lease and then enter into it. There are no time limits and discussions around a new tenancy can be had in advance of the existing tenancy coming to an end. The renewal lease can even be entered into before the end date of the existing tenancy. 

Serving a s.25 Notice 

A s.25 Notice can be served before or after the expiry of the existing tenancy. If served before the expiry of the existing tenancy then the s.25 Notice must be served not more than 12 months and not less than six months before the end date in the existing tenancy. If the existing tenancy has already expired then any s.25 Notice must be served with a notice period of no less than six months and no more than 12 months. When the s.25 Notice is prepared it must state a date for when the existing tenancy is to expire and the expiry date must be on or after the expiry of the existing tenancy with the required notice period of a minimum of six months.

The s.25 Notice should include:

• A proposed new rent
• Any other proposed terms of the new tenancy
• A start date for the new tenancy
• Extent of the property to be demised (even if same as per existing lease)

Before serving the s.25 Notice the landlord should consider speaking to a surveyor as the surveyor will be able to advise on the proposed terms for the new tenancy to be included in the s.25 Notice.

Once a s.25 is served what happens next:

Once served, the tenant has the following options:

• Refuse to renew;
• Accept the proposed terms; or
• Serve counterproposals to the proposed terms

What if the tenant refuses to renew?

The tenant must vacate no later than the date set out in the expiry of the s.25 Notice.

What if the tenant accepts the terms?

The landlord and tenant must agree a new form of lease and enter into the same no later than the date set out in the expiry of the s.25 Notice. The date set by the s.25 notice can be extended by mutual agreement. If the lease is not renewed by the end date in the s.25 notice the tenant can loose their 54 Act protection.

Tenant serves counterproposals                                

If the tenant serves counterproposals then the landlord may want to consider negotiating its proposed terms. If the parties cannot agree on new terms or only one remaining item is yet to be agreed upon, for example, this could be the rent, then the tenant would need to ask the court to decide any remaining terms where agreement cannot be reached. 

The tenant serves no response 

If the tenant has neither left the premises nor taken steps to agree the new tenancy by the deadline set out in the s.25 Notice then the tenant is deemed to have accepted the landlord’s proposed terms set out in the s.25 Notice. Alternatively, the landlord can ask for the existing tenancy to be ended and for the premises to be returned.

Any prudent landlord will review its plans for a premises at least six to 12 months in advance of the expiry of any tenancy. The 1954 Act is a complex piece of legislation and navigating the provisions of the 1954 Act can be akin to navigating a minefield. Our commercial property and commercial property litigation lawyers deal with the 1954 Act everyday and are well placed to advise any landlord on their options.

How Pinney Talfourd can help

If you are a landlord who has an existing tenancy has come to an end and would like legal guidance, our Commercial Property team is more than happy to assist.