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If a company is in administration, then no legal proceedings can be started without the permission of the court, or the administrator. So, if L goes into administration, can this ‘statutory moratorium’ be used to prevent T from applying to the court for a new lease? In a recent case, on expiry of its lease, T had applied to L for a new tenancy under LTA 1954. L opposed the application because it planned to redevelop (Ground (f)). T’s normal response would be to apply to the court for the grant of a new lease, but L then went into administration, and the administrator refused consent to the court proceedings (because it wanted longer to put together a redevelopment scheme – which would probably have increased the value of L’s property from £4m to £6m).
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What happens if L recovers possession from T on the basis of a ‘redevelopment’ that never occurs; can T claim compensation? This is what happened in a recent case where L told T about the planned redevelopment and then served a notice to terminate the tenancy based on the ‘redevelopment’ ground. On the facts, T realised that it would not be possible to remain in possession during the works, and that a court would not grant him a new lease if L did go ahead with the redevelopment. Accordingly, after L had rejected his offer of an increased rent, T vacated the premises and rented elsewhere. But, at the same time, L had been having second thoughts about the redevelopment and decided to accept the advice of an agent that a sale would be better than a redevelopment. However, L did not communicate this to T, who subsequently vacated.
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A CA decision reported earlier this year has resulted in many contracted-out tenancies not, in fact, being contracted out. The key point is that LTA 1954 gives security of tenure to a business T (ie a right to a lease renewal on expiry of the original lease). However, that statutory right of renewal can be excluded by consent of the parties; in the old days it used to be via a court order, but these days it will usually be done by a declaration from T. In that situation, T will not have the right to renew the lease.
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LTA 1954 allows T to request a new tenancy from L. The grounds on which L can oppose the application is set out in s30(1): failure to repair or maintain; persistent late payment of rent; other substantial breaches or for ‘any other reason connected with T’s use or management of the holding’;
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L and T can agree that T will not have the security of tenure provisions that normally apply under LTA 1954. Prior to June 2004, it was necessary for L and T to get a consent order from the County Court; these days, L merely serves a warning notice and T responds by signing a statutory declaration.
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In the current declining market, many Ts will not want to renew their existing business leases. From L’s point of view it will be important to get an early decision from T so that L can plan accordingly.
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A recent case is of interest because it shows that serious planning breaches by T may be sufficient grounds for refusing to grant T a new lease (under LTA 1954).
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Be aware of a major trap for L’s when drafting leases. The CA recently held that contracting out of LTA 1954 was not possible if a lease defines the term as a fixed period, together with ‘any period of holding over or extension, whether by statute or common law or by agreement’.
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LTA 1954 gives T a statutory right to renew its business tenancy at the end of the term. However, L and T can contract out of that right provided the tenancy is going to be for a ‘term of years certain’. Typically, this will be a fixed-term lease, or a fixed term with a break clause. A lease will not be for a ‘term of years certain’ if it is granted for a fixed term and then from year to year, or if it is granted for a fixed term with ‘any continuation, extension or holding over’.
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If you act on behalf of T who is renewing a lease with LTA 1954 protection, it is important to consider the issue of interim rent (ie the rent that will be paid between the expiry of the existing lease and the start of the new lease). Traditionally, the interim rent will usually be the same as the rent under the new lease, but in the current economic climate it is quite possible that the rent could be considerably lower than the current passing rent. If so, T will want the interim rent to start on the earliest date possible (ie the day after the contractual expiry of the existing lease), and in order to achieve that it will be necessary for T to serve an s26 request at least six months before the contractual expiry date. Source: DLA.
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An L who is involved in LTA 1954 lease renewal negotiations should avoid becoming involved in the pitfalls of CPR Pt 36.
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The procedures to be followed on an agreement to surrender under LTA 1954 were introduced by regulatory Reform Order 2003. The previous requirement that there had to be a court order authorising the agreement to surrender was abolished. Instead, T now has to give advance notice
to L. The prescribed form of warning notice advises T that by committing
itself to an agreement to surrender, it will be giving up its statutory rights
of renewal. Needless to say, it warns T to get legal advice.
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Seller owned the freehold, having granted a 99-year lease to its subsidiary (Tenant). Together, Seller and Tenant had agreed to sell the freehold to the Buyer. It had been arranged that there would be a surrender by Tenant to Seller so that the unencumbered freehold would transfer to Buyer. However, Seller refused to complete, arguing that the agreement to surrender (with Tenant) was void, for failure to comply with LTA 1954. This does, of course, require L to serve a written notice on T, and for T to then respond with a declaration (or statutory declaration).
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The security of tenure provisions for business premises under LTA 1954
do not apply to a term certain not exceeding six months unless:
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