Commercial Landlords & Tenants - Contracted-out tenancies: what happens at the end of them?

In leases of commercial property when the lease comes to an end the tenant normally has the right to a new lease.  In more recent years landlords have elected to have their leases contracted out of the Landlord & Tenant Act 1954, which means that the tenant has no right to a new tenancy. What happens then if at the end of the term the tenant remains in occupation having not entered into a new lease?

In certain circumstances Courts have decided that the tenant now occupies the premises under a periodic tenancy and as a consequence has a right to security and the grant of a new lease.  In different circumstances the tenant may only be occupying under a tenancy-at-will and could be asked to vacate immediately by their landlord.  This creates uncertainty for both landlord and tenant with disastrous consequences for the landlord who cannot get premises back or for the tenant who may be asked to leave on a moment’s notice. 

In order to avoid the problem a sensible landlord will have started a dialogue with its tenant to ascertain the tenant’s future intentions six or eight months before the lease expiry date and will have started negotiating the terms for a new lease.  By the time the existing lease expires the new lease will be in place, again on contracted-out terms.  This however is the counsel of perfection and if those discussions have not taken place a landlord can improve its position if it can prior to the lease expiring send an open letter to the tenant demanding possession of the property on expiry and also if it does not accept any rent from the tenant after expiry of the contracted-out lease. This is called a rent stop.  If the tenant remains in occupation after the expiry of a contracted-out lease the position needs to be regularised as soon as possible, again by a set of letters in very precise terms being sent to the tenant. 

If you are a tenant where you remain in occupation after the contracted-out tenancy has expired you should take legal advice on how you can best preserve your position depending on whether you wish to try and secure yourself security of tenure or whether you wish to vacate the premises in a short while and don’t want to be left to deal with dilapidations.

This area is a potential minefield.  In this article we have only given a few pointers of the potential problems.  If you are a landlord of just one or many properties and would like to discuss lease preparation and management etc in detail, or if you are a tenant of a commercial premises and want to clarify your rights as to what you can and cannot do either during the term or upon exiry, our property team will be happy to advise. 

Above all it is important that landlords and tenants obtain legal advice at the earliest stage to avoid innocently taking a step which could be extremely costly.

For an initial, confidential, no-obligation conversation, please call Julie Hughes on 01242 586848 (email jgh@hughes-paddison.co.uk) or Doug Armstrong on 01242 574244 (email dca@hughes-paddison.co.uk).