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Business Tenancies Notes

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This is an extract of our Business Tenancies document, which we sell as part of our Landlord and Tenant Law Notes collection written by the top tier of Oxford students.

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• First

protection LTA 1927 - allowed tenant to get compensation for loss of good will.

• "The central strand of policy was that the business tenant would be given legal rights sufficient to enforce the standards expected from a reasonable landlord… In addition, the Bill was framed so that the poor tenant (ie one in breach of covenant)
would be disentitled to renewal or compensation. By these means, the disturbance of business premises was to be reduced to a minimum and the parties encouraged to settle by agreement without recourse to the courts." (Haley)

• "Part II of the 1954 Act therefore, marks the culmination of the long-drawn out movement away from the sanctity of contract towards an effective system of control which protects business tenancies." (Haley). … Pearce (2013) Landlord & Tenant Review

The Act was created after the Second World War to support business occupiers by reducing the uncertainty and disruption arising from the lack of security. The intention was to enable a tenant to plan for the future by giving security of tenure at lease expiry and preventing the landlord from taking the benefit of improvements the tenant had carried out and the goodwill built up in an established business. Under Pt II, the general principle is that a tenant is entitled to a new lease on the same terms as existing lease, other than rent. Whilst the landlord was, and remains, able to regain possession at lease expiry, the grounds on which it can do so are limited. In short, the Act made provision for renewal of tenancies under a protected regime. Without the protection, the tenant is left to negotiate terms for renewal in an open and free market.

During the last 60 years, the commercial property market has changed significantly with leases becoming shorter and more complex.The standard 25 year term of the 1980s is a rarity with five year terms now common. As a result, the 1954 Act now comes into play much more frequently.
Although it is generally regarded as a model of good drafting which has worked well for many years, there is a common view amongst landlords that it allows the tenant to set the pace and the agenda with the courts favouring tenants.

The greater frustrations from the landlord's perspective come in multi-let properties where the Act is seen as preventing the redevelopment and improvement of the asset.These frustrations are well illustrated within retail, which continually changes as new retailers come to the fore and established names wane in popularity.To maintain the appeal of their shopping centres, landlords continually seek to add new retailers and remove those who no longer appeal to their target shoppers, reconfiguring units as the size of shops retailers want has changed over time. During the 1970s and 1980s, demand was strongest for "standard" shops of 1,500 - 2,000 sq ft which appealed to a wide range of retailers. By contrast, in the current market, retailers frequently seek shops of 10,000 sq ft or more. The extent of the works required to constitute redevelopment, the need for a landlord to prove its intention to redevelop under s.30, and the time and cost involved, act as barriers to carrying out physical improvements. An arguable consequence of the Act, albeit unanticipated, is that by providing significant protection to some tenants, it is hastening the demise of older centres in that buildings, tenant mix and lease terms are not being upgraded at the pace required to maintain appeal to prospective tenants and their customers. •

Instinct says that a tenant without security will be at a disadvantage in lease renewal proceedings as the landlord will be able to determine the strategy and dictate the terms of new leases. Again, using shopping centres as an example,
those retailers who are trading well or have recently spent money refitting and are keen to stay seem easy targets who will be willing to offer attractive terms for a new lease to avoid the costs and aggravation of relocating. This is, however,
not necessarily the case.

Ultimately, the terms on which a tenant will renew its lease come down to the rent it can afford and the demand for the property on the open market. In a weak market, the tenant may well hold the whip hand even without security of tenure. In a vibrant market where demand is strong, a landlord will be able to dictate terms and easily replace a tenant. Even then, it is debatable whether they would choose to do so. An incumbent tenant paying a slightly lower rent is almost always more desirable to a landlord than taking its chance in the market and risking void and rent-free periods which outweigh any increased rent that might be achieved.

Given the choice, a tenant will obviously prefer the protection provided by the 1954 Act and will use its negotiating strength to achieve that protection where possible. Similarly, a landlord, given the choice, would prefer to have the flexibility provided by leases outside the Act, although in practical terms it is debatable how often this flexibility is used.
Landlords often complain about the 1954 Act process but, by taking control of the court application and enforcing timetables, they can improve its efficiency. The bigger issues are the difficulties of modernising leases, the extent to which the tenant can dictate the length of term, the limitations on reconfiguring property and the hurdles involved in redevelopment, all of which have an impact on investment returns. As a result, it is little surprise that for many landlords the 1954 Act has become an outdated hindrance. An Outline of the Scheme of Protection

When a lease comes to an end, the tenant is able to continue his occupation. The landlord may only recover possession when the act permits it (Except for forfeiture not that easy).

Tenant may apply for new tenancy, there is no explicit rent control

It can be contracted out of •

PART II Landlord and Tenant Act 1954 = Security of Tenure for Business, Professional and Other Tenants

S.23 - Tenancies to which Part II Applies

(1)Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.
(2)In this Part of this Act the expression "business" includes a trade, profession or employment and includes any activity carried on by a body of persons, whether corporate or unincorporate.
(3)In the following provisions of this Part of this Act the expression "the holding", in relation to a tenancy to which this Part of this Act applies,
means the property comprised in the tenancy, there being excluded any part thereof which is occupied neither by the tenant nor by a person employed by the tenant and so employed for the purposes of a business by reason of which the tenancy is one to which this Part of this Act applies.
(4)Where the tenant is carrying on a business, in all or any part of the property comprised in a tenancy, in breach of a prohibition (however expressed) of use for business purposes which subsists under the terms of the tenancy and extends to the whole of that property, this Part of this Act shall not apply to the tenancy unless the immediate landlord or his predecessor in title has consented to the breach or the immediate landlord has acquiesced therein.
In this subsection the reference to a prohibition of use for business purposes does not include a prohibition of use for the purposes of a specified business, or of use for purposes of any but a specified business, but save as aforesaid includes a prohibition of use for the purposes of some one or more only of the classes of business specified in the definition of that expression in subsection (2) of this section. … Added Provisions
(1A) Occupation or the carrying on of a business—
(a) by a company in which the tenant has a controlling interest; or
(b) where the tenant is a company, by a person with a controlling interest in the company,
shall be treated for the purposes of this section as equivalent to occupation or, as the case may be, the carrying on of a business by the tenant.
(1B) Accordingly references (however expressed) in this Part of this Act to the business of, or to use, occupation or enjoyment by, the tenant shall be construed as including references to the business of, or to use, occupation or enjoyment by, a company falling within subsection (1A)(a) above or a person falling within subsection (1A)(b)

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