Commercial Lease Renewal: Landlord's Guide to the 1954 Act

If you own or are buying a shop, office or unit "inside the Act", you are not just negotiating one lease term. You are negotiating a rolling statutory right for the tenant to stay and come back for a new lease, on your building, at market rent.

1. What security of tenure actually is

Under Part II Landlord and Tenant Act 1954 a "business tenancy" does not simply end on the contractual expiry date.

If the tenant occupies the premises for the purposes of a business, they get security of tenure unless excluded in advance.

Security of tenure means:

The tenancy continues after the end of the fixed term ("holding over") until ended by the statutory procedures.

The tenant has a right to a new lease at market rent, unless you can prove one of the limited statutory grounds in section 30(1).

This protection exists to stop you simply booting out a business at lease end and capturing the goodwill they built up in that location.

Forum mistake: "The lease says it ends in 5 years so I can just get my property back." If the lease is inside the 1954 Act, it does not end on paper expiry. You must use section 25 / 26 procedures and, unless you can prove a ground, the tenant is entitled to a new lease.

2. When the Act applies and how to contract out

When the 1954 Act applies

Part II applies where:

There is a tenancy (not a mere licence).

The tenant is in occupation of the premises.

Occupation is for the purposes of a business (widely defined, includes trades and professions).

It does not apply to:

Purely residential tenancies.

Farm business tenancies (separate regime).

Certain service tenancies.

If it applies and you do nothing, the tenancy is "protected" and security of tenure kicks in.

How to contract out properly

You can exclude sections 24-28 (security of tenure) using the simplified procedure in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, which amended LTA 1954 s38A.

Before the lease is granted:

You serve a landlord's warning notice on the tenant in the prescribed form, explaining they will lose their renewal rights and compensation and advising them to take advice.

The tenant signs either:

A simple declaration if they receive the notice at least 14 days before they become bound to take the lease, or

A statutory declaration (sworn / affirmed) if completion is within 14 days.

The lease itself must record that the parties have agreed to exclude the Act and refer to the warning notice and declaration.

If you miss this before grant, you cannot "contract out later". The tenancy is protected.

Forum mistake: "We put a clause in the lease saying the Act does not apply so we are fine." Without the warning notice and declaration before the lease, that clause is worthless. The tenant will still have security of tenure.

3. Section 25 vs Section 26: who starts renewal and when

Once you are approaching lease expiry, either side can start the statutory renewal process.

Section 25 notice -- landlord starts it

You serve a Section 25 notice under the Act to terminate the existing tenancy and either:

Propose terms for a new tenancy, or

Say you will oppose renewal and on which grounds.

Timing: must be served not less than 6 months and not more than 12 months before the termination date you specify in the notice.

You cannot serve s25 if the tenant has already validly served a s26 request.

Section 26 request -- tenant starts it

The tenant can serve a Section 26 request asking for a new tenancy and proposing terms, including the new rent and start date.

Timing: must be served not less than 6 months and not more than 12 months before the requested new tenancy date and cannot specify a date earlier than the contractual expiry.

Once a valid s26 is in, you cannot then serve a s25; instead, if you want to oppose renewal you must serve a counter-notice within the statutory time frame stating your grounds under section 30(1).

If neither side serves anything:

The tenancy simply continues under section 24, on the old terms, until someone starts the statutory process or the tenant gives notice under section 27.

Forum mistake: "If I do nothing the lease just ends." Inside the Act, doing nothing means the tenant carries on under the old lease and still has renewal rights.

4. Grounds to oppose renewal and compensation

Under LTA 1954 s30(1) you can only oppose a protected tenant's right to a new lease on specific grounds:

(a) Disrepair: substantial breaches of repair obligations.

(b) Persistent delay in paying rent: not just one late payment; you need a pattern.

(c) Other substantial breaches: serious breaches of other obligations.

(d) Suitable alternative accommodation: you can reasonably offer them other premises.

(e) Current tenancy was created by sub-letting of part only of the property.

(f) You intend to demolish or reconstruct the premises and cannot reasonably do so with them still there.

(g) You intend to occupy the premises yourself (or via a company you control) for your own business or as a residence.

The burden of proof is on you. The court will scrutinise whether you genuinely intend to redevelop or occupy (grounds (f) and (g)), and whether the breaches are serious enough on grounds (a)-(c).

Compensation when you succeed

If you successfully oppose renewal only on grounds (e), (f) or (g), the tenant is entitled to statutory compensation, based on the rateable value of the premises:

Standard case (business in occupation less than 14 years): 1 x rateable value.

Long occupation (more than 14 years at the relevant date): 2 x rateable value.

You pay this even if you have done nothing wrong. It is the price of terminating a protected tenancy so you can redevelop or occupy.

Forum mistake: "I will just say I plan to redevelop and get them out." If you rely on (f) or (g):

You will probably pay statutory compensation.

You must show real evidence of intention and ability (planning, funding, timelines). Courts will not accept a vague story and then watch you immediately re-let the unit on the same basis.

5. Court, terms of the new lease and interim rent

Court procedures if you cannot agree

If either party has served a valid s25 or s26, and you cannot agree terms:

The party wanting a new lease must issue court proceedings by the deadline in the notice (the termination date or date requested for the new lease), unless extended in writing under the 2003 Order.

The court will first decide entitlement: are you entitled to oppose renewal under s30? If not, a new tenancy must be granted.

It then settles terms: rent, length, repairing obligations, alienation, etc, broadly on modern market terms subject to the Act's constraints.

The court's job is to set a fair market rent and terms for that type of property, not to give you premium terms because you "want a better deal".

Interim rent

Between the contractual expiry date and the start of the new lease (or termination), the tenant continues to pay rent under the old lease. But either party can ask the court to set an interim rent under sections 24A-24D:

Usually requested as part of s25/s26 proceedings.

Often set at or close to the eventual new lease rent, but the court has discretion, especially if market rents have moved significantly.

This matters if:

Rents have fallen since the old lease was granted -- the tenant will push for a lower interim rent.

Rents have risen -- you will push for higher interim rent to avoid a long period of under-rent while renewal drags on.

Forum mistake: "Once the lease expires they pay whatever we agree until the new lease is done." If either side applies, the court can back-date interim rent, which can mean the tenant gets a rebate or you get a back-dated uplift.

6. What forums get wrong about the 1954 Act

Big misunderstandings you should call out in your PropertyKiln guide:

"The lease expiry date is the end; I can just change the locks."

Protected tenancies do not end at contractual expiry. You must use s25 / s26 and, unless you can prove a ground, the tenant has a right to a new lease.

"We put 'no security of tenure' in the lease, so they have no rights."

Without the proper contracting-out procedure (warning notice + declaration before lease), that wording is ineffective and the tenant is still protected.

"I can always refuse renewal if I want the unit back."

You can only refuse on the strict grounds in s30(1). Wanting a higher rent or a different type of tenant is not a ground.

"If I rely on redevelopment grounds, I do not owe them anything."

Opposing on (e), (f) or (g) triggers statutory compensation of 1-2 x rateable value. That is real cash you must budget for.

"We can sort out the paperwork later if we forget to contract out."

You get one shot. If you grant the lease without properly excluding the Act, that tenancy is protected for its life. You cannot cure it after the event.

For your PropertyKiln content, the practical position is:

If you want full control at term end on small units you may redevelop or occupy, contract out as standard and only give security of tenure where you are happy with a long-term anchor tenant.

If you inherit protected tenancies, treat the 1954 Act timetable and grounds as part of your business plan. You are not just "renewing a lease"; you are either buying or unwinding a set of statutory rights that sit over your bricks.

Legislation tracker, budget coverage, new tools. Free, no spam.

Didn't find what you were looking for?