What is the 1954 Landlord and Tenant Act and what should small businesses know?

The Landlord and Tenant Act 1954 applies if you’re renting business premises. Here’s our guide on what commercial tenants need to know.

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We’ve created this guide in collaboration with DAS UK, our legal expenses insurance provider. DAS UK helps businesses by giving them access to specialist legal cover, including unlimited legal advice over the phone. Read more about legal expenses insurance available through Simply Business.

What is the Landlord and Tenant Act 1954?

It’s important for businesses that lease their premises to understand the 1954 Landlord and Tenant Act. That’s because the Act is ultimately designed to protect businesses when their commercial tenancy agreement comes to an end.

This protection comes in the form of ‘security of tenure’, which outlines a commercial landlords' responsibilities when terminating a commercial lease agreement.

If the Landlord and Tenant Act 1954 Part II applies to your commercial tenancy, you’ll have the statutory right to renew your tenancy at the end of its term.

Landlord and Tenant Act 1954 Part II explained

While Part I of the 1954 Landlord and Tenant Act applied to residential tenancies and is now superseded by other legislation, Part II of the Act is still relevant for commercial tenancies.

It applies if you’re renting a commercial property for business purposes (with some exemptions, explained below). It gives you security of tenure, which is a statutory right for the contract to continue at the end of the agreement on the same terms until it’s lawfully terminated.

Most business tenancies will generally fall under the Landlord and Tenant Act 1954 and therefore have security of tenure. That being said, there are exemptions, including:

• certain agricultural tenancies
• service tenancies
• certain tenancies that have been granted for six months or less
• contracted out tenancies (when the landlord and tenant have taken formal steps to ensure that security of tenure doesn’t apply)

What does Landlord and Tenant Act 1954 ‘security of tenure’ mean?

Understanding security of tenure means that you’ll have a grasp of your rights at the end of your commercial tenancy agreement. If you don’t know your rights, you might end up vacating your business premises unnecessarily, which may harm your business if your location has played a part in its success.

If Part II of the Landlord and Tenant Act 1954 applies to your agreement, then you can renew your tenancy at the end of the contractual term.

The landlord can only oppose renewal on limited grounds, set out in section 30 of the Landlord and Tenant Act 1954:

• premises are in disrepair
• arrears of rent
• other breaches of covenant
• landlord can provide suitable alternative accommodation
• tenancy was created by a sub-letting
• landlord's intention to redevelop
• landlord's intention to occupy

A landlord will sometimes want the tenant to ‘contract out’ of the Act, meaning the tenant gives up their statutory rights. If you contract out, you:

• have no right to remain in the property at the end of the lease
• must leave the property at the end of the lease unless the landlord chooses to offer a new lease
• have no right to ask the court to fix the rent or the terms of the lease if the landlord chooses to offer another lease
• have no right to compensation from the landlord on leaving the property at the end of the lease

Compensation under the 1954 Landlord and Tenant Act

If you have a statutory right to renew your lease at the end of its term, and your landlord lawfully opposes the renewal on no-fault grounds (see below), you may be entitled to compensation.

The no-fault grounds are set out in paragraphs (e), (f) and (g) of section 30(1) of the Act:

• the tenant was leasing part of the premises, and the landlord intends to re-let the whole property for substantially more rent than they can get by re-letting the constituent parts (e)
• the landlord intends to demolish or reconstruct the property (f)
• the landlord intends to occupy the property for business purposes or as a residence (g)

Compensation is calculated by applying a multiplier to the rateable value of the property. These calculations are:

• for less than 14 years occupation – the rateable value of the property x the appropriate multiplier x 1
• for 14 years or more – the rateable value of the property x the appropriate multiplier x 2

What are the Landlord and Tenant Act 1954 sections 24 to 28?

Section 24 Landlord and Tenant Act 1954

Section 24 says that after the end of the contractual term, a business tenancy will continue under section 24(1) of the Landlord and Tenant Act 1954 until it’s terminated by one of the prescribed methods.

Section 25 Landlord and Tenant Act 1954

A section 25 notice is what’s served by the landlord to terminate the existing lease by proposing a new one or refusing renewal.

The notice can’t be served more than 12 months before the termination date, nor less than six months before the termination date. The notice must be given to the tenant in the specified format, including all the required information.

The notice must also say whether the landlord is proposing to grant a new lease or oppose the granting of a new lease. If the landlord is opposing the lease, they need to set out the grounds for doing so.

Section 26 Landlord and Tenant Act 1954

Section 26 allows the tenant to request a new lease by serving notice on the landlord.

As above, the notice can’t be served more than 12 months before the termination date, nor less than six months before the termination date. The notice needs to be in the right format with all the required information.

If the landlord doesn’t agree with the renewal, they need to serve a counter-notice within two months after the tenant’s request is served, specifying the grounds they’re opposing the renewal under section 30(1) of the Act.

Section 27 Landlord and Tenant Act 1954

A section 27 notice allows the tenant to stop the lease by serving notice on the landlord at the end of the contractual period. It won’t continue if the tenant brings the lease to an end by giving at least three months' notice to the landlord under section 27 of the Act.

Section 28 Landlord and Tenant Act 1954

Where the landlord and tenant enter into an agreement that complies with section 28, the Act will cease to apply to an existing tenancy on completion of the agreement.

The existing tenancy will continue, unprotected by the Act, until the commencement date specified in the agreement for the future tenancy.

What is interim rent when renting business premises?

Interim rent is different to rent that’s payable under the terms of the lease. It’s what you need to pay while your lease continues under section 24 of the Act.

Either the landlord or the tenant can apply to court to determine an interim rent following the service of a section 25 notice or a section 26 request. It’s the court’s discretion as to whether an interim rent will be payable and, if it is, how much the rent will be.

More information about legal expenses insurance

Legal expenses insurance gives you protection against the potential costs of legal action brought by or against your business. This includes legal claims relating to property damage, nuisance, or trespass.

If you have legal expenses insurance as part of your Simply Business policy, you have access to a number of useful services through DAS Businesslaw (you’ll just need your voucher code found in your policy documents to register).

DAS has a legal advice helpline, available whether you’re facing a serious legal issue or just want to check something with an adviser. They also offer a range of legal templates and guides to help you with tax and contracts.

Would you like to know more about your rights under the Landlord and Tenant Act 1954? Let us know in the comments below.