Termination of a business tenancy without renewal

If you are a landlord or a tenant you should be aware that there are certain things you must do in order to legitimately bring your business tenancy to an end.

Procedure for termination by a landlord

The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 enables a landlord to start proceedings to terminate a tenancy without renewal. The procedure is not particularly complicated however, there must be grounds to terminate. These are set out in the relevant legislation.

To start with the landlord must serve on the tenant a section 25 notice. The notice must be in prescribed form and landlords must be very careful to use the correct version (always seek legal advice on this). The notice must be served on the tenant (and in accordance with the provisions in the lease as to service – if any) not more than 12 months, nor less than 6 months before the date specified in the notice terminating the tenancy. That date is usually the date when the contractual term comes to an end (but not necessarily so).

Provided the tenant has not already served a section 26 notice on the landlord requesting a new tenancy, the landlord (after service of its notice) is free to commence court proceedings for termination of the lease. However, in the event that the tenant has served a section 26 notice, the landlord must serve (within two months of service of that notice) on the tenant a counter notice setting out the grounds upon which it opposes the grant of a new tenancy. In these circumstances it is only after the service of the section 26 counter notice that the landlord can apply to court.

Providing the court agrees that the landlord has established one of the grounds in section 30 of the Landlord & Tenant Act 1954 it will make an order terminating the tenancy.

In the event the landlord fails to establish a ground for opposing a new tenancy, the parties can then either agree the terms of a new tenancy or in the absence of agreement, the court will impose terms on the parties.

Termination by the Tenant

If you are a tenant, you should note that your fixed term tenancy will terminate at the end of the contractual term, provided that you have already vacated the whole of the property let by that date.

Tenants should note, that if they remain in occupation of the property beyond the contractual term then in order to terminate, they must give at least 3 months written notice to the landlord to end the tenancy.

Some grounds

The landlord must be very careful to set out within the section 25 notice or counter notice (as the case may be) the grounds upon which it relies to oppose the granting of a new tenancy. The full list is set out in section 30. The two most often referred to are grounds (f) and (g):

• (f) This is available to any landlord who intends to demolish or reconstruct the whole or a substantial part of the property let; or to carry out substantial works/construction on it and is unable to do so without termination of the tenancy. Establishing this ground is difficult and the landlord must show not only a firm and settled intention to carry out the work but in addition, that there is no other way of doing so without terminating the tenancy.
• (g) The landlord must show that it intends to occupy the property wholly or partly for the purposes of his/her business or as his/her residence.

This ground is only available to a landlord who is able to show that his own interest in the property was purchased or created 5 years prior to the termination of the current tenancy.

Compensation

The tenant is entitled to compensation in the following circumstances:

The court terminates the tenancy on one of the grounds referred to above on the tenant’s application to court for a new tenancy opposed by the landlord.
The court terminates on the landlord’s application on one of the grounds referred to above.
The landlord has served either a section 25 notice or section 26 counter notice opposing a new tenancy on one of the grounds mentioned above and there has been no application to court by either the tenant or the landlord

Compensation is calculated as follows:

If the premises have been occupied by the tenant wholly for business purposes for the whole of the proceeding 14 years, the compensation is twice the rateable value of the property.

Otherwise the rule generally is 1x the rateable value.

The trap for the unwary 

Whether you are a landlord or a tenant you should always seek legal advice before seeking to terminate your agreement. As we all know very little in life is straight forward and there can be expensive lessons for not following the procedure properly.