Security of Tenure (LTA 1954) — SQE1 FLK2 Property Law and Practice

A company holds a ten-year lease of a warehouse expiring on 30 June 2028. It runs its distribution business from there and wants a new lease on similar terms. The landlord has served nothing. On 1 March 2028 the company's solicitor serves a request for a new tenancy, in the prescribed form, specifying 1 July 2028 as the start date. Is it a valid request? No. It is of no effect at all.

The form was right. The timing was not, because the window runs from the making of the request, and four months is inside it. This is Security of Tenure under Part II of the Landlord and Tenant Act 1954. Keep that company in mind, because its position is better than it sounds.

Here is the route. What the Act protects, and what falls outside it. Then contracting out, which decides whether any of the rest applies. Then the continuation tenancy. Then the two notices and their shared window. Then the landlord's seven grounds of opposition. Then the terms the court fixes. Then compensation. And finally the deadlines that end the whole thing.

Start with what security of tenure is. It is the right of a business tenant to stay in occupation and obtain a new lease when the current one ends. Part II of the Landlord and Tenant Act 1954 gives it. Before 1954 a tenant could simply be put out.

So the first question is always whether this tenancy is protected. Under section 23 the Act applies where the tenant occupies the premises for the purposes of a business. Occupation by the tenant. That is the load-bearing word.

Which produces a trap worth knowing. A company takes a headlease of a building and sublets every unit in it. Is the headlease protected? No. That is Graysim Holdings Ltd v P & O Property Holdings Ltd. Occupation by subtenants is not occupation by the head tenant.

Now what falls outside the Act altogether. Agricultural holdings and farm business tenancies, under the Agricultural Holdings Act 1986 and the Agricultural Tenancies Act 1995. Mining leases. Service tenancies, granted because the tenant holds an office, appointment or employment. And certain residential tenancies, covered by other legislation.

A licence is outside it too, for a different reason. It is not a tenancy at all, so it never carries security of tenure. And note what is not an exclusion. There is no low-rent exclusion for business tenancies.

One more exclusion, with teeth on both sides. Under section 43(3) a tenancy for a term certain not exceeding six months is outside the Act. But the exclusion is lost if the term is renewable or extendable beyond six months, or if occupation exceeds twelve months.

Second, contracting out, and this is where landlords lose cases they thought they had won. Contracting out means the tenant agrees that the Act will not apply. It must be done before the lease is granted. You cannot contract out of a lease that already exists.

Section 38(1) makes void any agreement which purports to stop the tenant applying under Part II. Void. The only way through is the section 38A procedure, which since the 2003 reforms has replaced the old court-approval system.

Two steps, and both must happen. The landlord serves a warning notice in the prescribed form, explaining what the tenant is giving up, before the tenant becomes contractually bound. Then the tenant makes a declaration. Which declaration depends on the timing.

Here is the rule that decides the cases. If the warning notice was served at least fourteen days before the tenant is bound, a simple declaration will do. If it was served with less notice than that, the tenant must make a statutory declaration, before an independent person authorised to administer oaths.

Get that wrong and the exclusion is simply ineffective. The tenant has full security of tenure, however clearly the lease recites it and however long the tenant has occupied. Completion cures nothing.

Third, the continuation tenancy, which is why our warehouse company is in better shape than it looks. Under section 24 a protected tenancy does not end on the contractual term date. It continues automatically until it is ended in one of the ways the Act allows.

Which means the tenant cannot simply drift out either. A tenant in occupation at the term date stays liable under the continuing tenancy, and can end it only by a section 27 notice. Walking away and stopping the rent is not a permitted route.

Fourth, the two notices, and they share a window. The tenant takes the initiative by a section 26 request for a new tenancy. The landlord takes it by a section 25 notice. Both must be in the prescribed form, and both are governed by the same six to twelve month rule.

For the tenant's request, the date specified for the new tenancy to begin must be not less than six nor more than twelve months after the request is made. It must also be no earlier than the date the current tenancy would otherwise end.

Which is exactly where our solicitor went wrong. Request made 1 March 2028, new tenancy to begin 1 July 2028. Four months. Inside the window, so of no effect. Twelve months is the maximum, not a fixed requirement, and any compliant date would have done.

But the client has not lost its renewal rights, because the tenancy continues under section 24. The answer is to serve a fresh request specifying a compliant date. Late is fatal only when the deadline for applying to court has gone, and we are not there yet.

Two limits on who may request. Only a tenant under a term of years certain exceeding one year, or a term certain and then yearly, may serve one, so a periodic tenant cannot. And none may be served once the landlord has given a section 25 notice.

Now the landlord's section 25 notice. It is not a common law notice to quit. It specifies the date the current tenancy is to end. That date must be not less than six nor more than twelve months after the notice is given, and not earlier than the contractual term date.

And it must nail the landlord's colours to the mast. The notice must state whether the landlord opposes a new tenancy and, if so, on which of the section 30(1) grounds. A notice that opposes without specifying grounds is invalid, vague grounds may be ineffective, and the landlord cannot add new grounds later.

A notice which does not oppose is different. It must set out the landlord's proposals as to the property, the rent and the other terms. Those are proposals only. They bind neither party, the tenant's silence is not acceptance, and if the terms are not agreed the court fixes them.

Fifth, the grounds. Section 30(1) sets out seven, lettered (a) to (g), and they are exhaustive. Disrepair from the tenant's breach. Persistent delay in paying rent. Other substantial breaches. Suitable alternative accommodation. Uneconomic sub-letting of part. Demolition or reconstruction. And the landlord's own occupation.

Two divisions to hold. Grounds (a) to (d) are discretionary, so the court may still grant a new tenancy. And grounds (e), (f) and (g) are the no-fault grounds, which trigger compensation. The burden of proof is on the landlord throughout, and courts scrutinise the claims carefully.

Try one. In ten years the tenant has paid the rent late once. The landlord wants to oppose on ground (b). Can it? No. The ground requires persistent delay, and a single lapse is not persistence.

Ground (f), redevelopment, is the one that generates the litigation. The landlord must intend to demolish or reconstruct, or carry out substantial construction work, and must show it cannot reasonably do so without obtaining possession. Both limbs matter.

The second limb has an answer built into the Act. Under section 31A the tenant can defeat the ground by offering the landlord access to carry out the works. If that lets them be done without obtaining possession, the ground fails.

And the intention must be real. In S Franses Ltd v The Cavendish Hotel the Supreme Court held that the landlord's intention must exist independently of the tenant's claim. Works the landlord would not carry out if the tenant left voluntarily cannot satisfy ground (f), however genuine the offer to do them.

Ground (g), own occupation, needs a firm and settled intention to occupy for the landlord's own business or as its residence. And it carries a bar. Under the five-year rule in section 30(2), it is unavailable where the landlord bought or created its interest within the five years ending with the termination of the tenancy.

Ground (d), suitable alternative accommodation, is rarely used because suitability is hard to prove. It must suit the tenant's requirements, which include preserving goodwill, and be suitable in nature, extent and situation. Ground (d) pays nothing, because a tenant rehoused is not a tenant removed.

Sixth, the terms of the new lease, where the court has to decide three things. Duration under section 33. Rent under section 34. Everything else under section 35.

Duration first, and there is a ceiling. Under section 33 the court cannot order a term exceeding fifteen years. Ask for twenty and you will not get it. There is no presumption of any particular length, and the court weighs the tenant's business needs, the property and market practice.

Rent under section 34 is the open market rent, what the holding might reasonably be expected to fetch from a willing lessor. But four things are disregarded, and they are all in the tenant's favour.

The fact that the tenant or its predecessors have been in occupation. Any goodwill attached to the holding by the tenant's business. Improvements the tenant carried out voluntarily. And, for licensed premises, any licence attaching to the holding.

The improvements disregard has a boundary. It covers works done during the current tenancy, or completed not more than twenty-one years before the application. So a tenant who installed a mezzanine and air-conditioning voluntarily does not pay rent on its own money.

Then the other terms, under section 35. The starting point is the existing bargain, and the burden lies on the party proposing a change to show it fair and reasonable. That is O'May v City of London Real Property Co, and offering a rent adjustment does not by itself justify a more onerous obligation.

Within that framework the court can vary user, repair, alienation and break provisions. But it aims at continuity, so significant variations need good reasons.

Seventh, compensation, under section 37. The tenant gets it where the new tenancy is refused by reason of grounds (e), (f) or (g) and no other. That is the whole logic. The tenant loses premises it has invested in, for reasons unconnected with its own conduct.

Watch what that turns on. It is the ground renewal was actually refused on, not the grounds pleaded. A landlord who pleads disrepair and redevelopment, loses the first and wins the second, pays. And a tenant who fights and loses is entitled just as much as one who leaves quietly.

The sum is mechanical. The rateable value of the holding, multiplied by the statutory figure, currently one. It doubles where the tenant, and any predecessor carrying on the same business, has been in occupation for fourteen years or more. A multiple of rateable value, never of rent.

And that is all the Act gives. There is no separate disturbance payment for removal costs or lost goodwill. Those belong to compulsory purchase compensation. The tenant really does bear the costs, and really cannot recover them under Part II.

One exception is worth knowing. Under section 37A, a tenant induced to give up possession by the landlord's misrepresentation or concealment of material facts may apply for compensation for its loss. That claim bites on a landlord who lied.

Finally, the deadlines, which is where rights are actually lost. After a section 26 request the landlord may serve a counter-notice within two months, stating its grounds. Miss that and the landlord cannot oppose.

Then the one that matters most. The court application must be made before the end of the statutory period in section 29A. That is the termination date in the landlord's section 25 notice, or immediately before the date the tenant's section 26 request specifies. Miss it and the tenant loses its renewal rights.

That deadline can be extended, but only in one way. Under section 29B the parties may agree an extension in writing, made before the deadline expires. Negotiations do not stop the clock. Neither does an expectation of settlement.

Either party may apply, and the landlord may seek an order terminating the tenancy without a new one. But once one has applied, the other cannot bring a competing application.

And somebody has to fix the rent meanwhile. Once a section 25 notice or a section 26 request has been given, either party may apply for an interim rent under sections 24A to 24D. No application may be made more than six months after the end of the relevant tenancy. Since 2003 the interim rent is normally the rent fixed for the new tenancy.

A word on how SQE1 tests this. You will not be asked to recall a case name or a section number. You get a scenario, five answers, and one instruction: pick the best. Learn the rules. The names are memory pegs, nothing more.

If you keep only three pegs. Graysim Holdings Ltd v P & O Property Holdings Ltd, where subletting the whole cost the head tenant its protection. S Franses Ltd v The Cavendish Hotel, where works designed only to remove the tenant could not satisfy ground (f). And O'May v City of London Real Property Co, where the party wanting the change had to justify it.

Four traps. One: the six to twelve month window runs from the notice or request, not from the term date. Serving early is not the same as serving in time, and the court has no jurisdiction to extend it. Diarise before the twelve-month window even opens.

Two: contracting out is void unless the procedure was followed. Not voidable, and not cured by the tenant signing, understanding, completing or occupying. Ask two questions. Was the warning notice served before the tenant was bound, and was it fourteen days or more?

Three: compensation follows the ground the renewal was refused on. Grounds (e), (f) and (g) pay. Fault grounds do not, and neither does ground (d), because the tenant offered suitable alternative accommodation is being rehoused rather than removed.

Four: the section 29A deadline is the one that actually loses cases. Settlement talks do not extend it. Only a written agreement under section 29B, made before it expires, does.

Quick check. A landlord and a company agreed a seven-year lease of offices. No warning notice was served before completion, and the company signed no declaration. The lease contains a clause excluding sections 24 to 28 of the Landlord and Tenant Act 1954, and the company's director signed it having read that clause. Six years later the landlord relies on the clause and requires the company to leave.

What is the company's position on renewal? Three candidates. One: no right to renew, because the clause records the parties' agreement and the company signed it. Two: a right to renew, but only if it shows its director did not understand the clause. Three: a right to renew, because the exclusion is void unless the prescribed notice and declaration procedure was followed. Pause here if you want a moment.

The answer is three. Section 38(1) makes void any agreement purporting to preclude the tenant from applying under Part II, except where the parties use the section 38A procedure. That needs the prescribed warning notice before the tenant is bound, and then the appropriate declaration. Neither step was taken here.

Why the others fail. Option one treats agreement as enough, when it is the statutory procedure that makes an exclusion effective. Option two asks the wrong question. The tenant's understanding is irrelevant, and so is legal advice. What matters is whether the prescribed steps were taken.

Five things to take away. One: the Act protects a tenant who occupies for the purposes of a business, so subletting the whole loses it. Two: contracting out is void unless the warning notice came before the tenant was bound, with a statutory declaration where there were fewer than fourteen days.

Three: our warehouse company had the right form and the wrong date, because the six to twelve months runs from the request. The tenancy continued under section 24, so it could serve again. Four: seven grounds, exhaustive, and only (e), (f) and (g) pay compensation, at rateable value, doubled after fourteen years.

Five: the court fixes duration up to fifteen years, rent with four disregards, and the other terms starting from the existing bargain. Next time, Planning Law.

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