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Contract Me Out – Excluding Security of Tenure for Commercial Properties

For landlords and tenants, what happens at the end of the lease is just as important as what happens at the beginning.

The perhaps “familiar” but not always fully appreciated principle of security of tenure often comes into play at this stage and can be heavily negotiated during the lease negotiations. However, what does it actually mean for landlords and tenants?

Security of tenure is the statutory right of a tenant to occupy the property after the lease has expired and to make a request for a new lease. It normally applies to most commercial leases, unless it has been specifically excluded. If the tenant has the right to renew its lease at the end of the contractual term, the landlord can only oppose this on certain limited grounds.

By serving the correct notices and including a clause to that effect in the lease, it is possible to exclude/contract out of security of tenure rights.

What are the effects of excluding security of tenure?

Landlord Tenant

  • Can take automatic possession of property without the risk of the tenant claiming
  • If the Landlord intends to occupy, redevelop or offer the property to new tenants, they have the opportunity to do so
  • Tenants may expect more beneficial rental rates as contracting out is normally considered less attractive for tenants

Tenant

  • The tenant may be offered more beneficial
  • The tenant has no right to remain in the property and must leave at the end of the lease unless the landlord offers a new lease
  • The tenant cannot ask the Court to fix the rent/terms of any new lease offered
  • The tenant cannot claim compensation from the landlord when it leaves
  • If the tenant has invested in the property/has significant goodwill attached to it, this may be lost. Alternatively, if the property is for short-term use, tenant has the opportunity to locate somewhere else

If you would like any further information, please do not hesitate to contact our Property team at Foskett Marr Gadsby & Head LLP (who are based in Epping and Loughton) on 01992 578 642.