PROPERTY JOURNAL

An A–Z of the Landlord and Tenant Act 1954 for APC

To achieve the Landlord and tenant competency, APC candidates need to ensure that they properly understand the relevant legislation and its implications for dealing with both parties, particularly in relation to lease renewals

Author:

  • Jen Lemen FRICS

15 March 2024

Landlord and tenant is a technical competency on a variety of APC pathways, including Commercial Real Estate, Corporate Real Estate, Facility Management, Property Finance and Investment, Residential, Rural and Valuation. 

In this article, we will focus on the application of this competency to commercial property assets. 

The pathway guides explain that the competency relates to 'the management of the landlord and tenant relationship. It has a broad scope covering all aspects of lease negotiations arising between landlord and tenant'. 

The two core activities relating to this competency for Commercial Real Estate candidates are lease renewals and rent reviews. The former requires a robust understanding and application of the Landlord and Tenant Act 1954.

RICS confirms that candidates should have a good understanding of how to act – at level 2 – and advise – at level 3 – on behalf of landlords and tenants alike. Broad experience is a prerequisite for this competency, and candidates may need to liaise with their employers to gain such experience.

Ground A: under section 30 of the Landlord and Tenant Act 1954, there are seven grounds of opposition that can be put forward by a landlord – in a hostile section 25 notice, or a counternotice to a tenant's section 26 notice – to oppose a new tenancy. The first of these is ground A, a persistent breach of the tenant's repairing covenant. This is therefore known as a fault ground. The breach needs to be serious and ongoing throughout the existing lease term. If a landlord is successful in proving this ground, then they are not obliged to pay the tenant any compensation for disturbance.

Ground B: another fault ground, this relates to a persistent delay in the tenant paying rent. 'Persistent' here refers to falling into arrears on several occasions, so it must be more than just a one-off late or non-payment. 

Ground C: this is another fault ground, and relates to another substantial breach of covenant by the tenant, generally concerning their use or management of the property, or another breach of their lease. It will, however, exclude minor breaches, e.g. a minor breach of use which has been rectified. The court will also consider the action taken by the landlord in relation to the breach or breaches in question.

Ground D: this relates to the provision of suitable alternative accommodation by the landlord. They must make an offer as early as possible, ideally before or at the time they serve the hostile section 25 notice. The offer of alternative accommodation should be reasonable in terms of the current lease and tenant's circumstances; that is, it should be suitable, preserve goodwill, and be available at the end of the current tenancy. The landlord does not have to compensate the tenant for disturbance if suitable alternative accommodation is provided, although the tenant is not deemed to be 'at fault'.

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Ground E: another no-fault ground, this relates to an uneconomic subdivision where the landlord has inherited sublettings created by the tenant, which would prevent the landlord selling or letting the premises as a whole. In reality, this ground is rarely used, and is not available where there is an immediate landlord and tenant relationship, i.e. not a sub-tenant and landlord scenario.

Ground F: a third no-fault ground applies in circumstances where the landlord wishes to demolish, reconstruct or redevelop a property. They must be able to evidence a firm and genuine intention at the hearing date that they could not undertake the work without securing physical and legal possession of their property. There is a significant amount of case law relating to this ground, of which candidates should be aware. A good example is S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62 and Betty's Cafes Ltd v Phillips Furnishing Stores Ltd (No.1) [1959] A.C. 20.

Ground G: the final no-fault ground concerns the landlord requiring the property for their own occupation. They must have a firm and settled intention to occupy the premises for the purpose of their own business or residence and must also be able to prove that they have a reasonable prospect of doing so by the hearing date. To qualify for this ground, the landlord must be competent, which in this case means having owned the freehold interest in the property for at least five years from the date specified in the section 25 or 26 notice. The word 'competent' is defined within the act and has nothing to do with being competent in terms of the APC.

Holding over: if no notices are served under the 1954 Act by the expiry date stated in the lease, then a protected lease will continue to run and the tenant will hold over, i.e. the lease continues to run. This means that the lease continues as a periodic tenancy until notice is served by either party.

Interim rent: in basic terms, this is the amount of rent paid between the old lease expiring and the new one commencing. An interim rent application can be served by either party after a section 25 or 26 notice, and within six months of termination of the old tenancy; however, it is payable from the earliest possible date stated in the section 25 or 26 notice. Thus, serving notice is essential to trigger liability to an interim rent. Alternatively, by not serving a section 26 notice, a prudent tenant will not trigger this liability – potentially a good strategy in a rising market.

Jurisdiction: it is important to understand what laws pertain when considering the implications of the 1954 Act, because it only applies in England and Wales and not in Scotland or Northern Ireland. Legislation and proceedings in those jurisdictions are different, and candidates need to be familiar with the law where they are working. In Northern Ireland, the Business Tenancies (Northern Ireland) Order 1996 applies, and in Scotland the principle of tacit relocation applies.

K Group: the 2023 case BMW (UK) Ltd v K Group Holdings Ltd Claim No K10CL172 focused on whether a landlord's break option should be granted in the renewal lease. The existing lease did not include such an option, so the onus was on the landlord to prove that the request was fair and reasonable. In this case, the court found that the operation of the break should be 'sufficiently on the cards' and not just a vague possibility. This means that the landlord needed the break to carry out, for example, future development of the property or extensive repair works.

Litigation: the parties can apply to the county court if the lease renewal cannot be settled by negotiation. The latest that such an application can be submitted is the termination date stated in the section 25 or 26 notice, or in any agreed extension of time. The claim must be issued within four months, although either party can apply to the court to accelerate the process. Unless agreed otherwise, section 64 of the 1954 Act states that the new lease will commence three months after the court order – known as final disposal of the application – unless the court directs otherwise.

Mandatory requirements: RICS' Code for leasing business premises sets out mandatory requirements and best practice guidance for lease renewals and lettings. When it comes to the former, the key requirement is that negotiations and heads of terms must be approached constructively and collaboratively, with the heads of terms set out in writing. The standard also provides recommended lease terms to be incorporated into renewal leases. 

Negotiations: a key part of lease renewals, informal negotiations could take place before formal notices are served, which keeps legal costs to a minimum and maintains a good relationship between the parties. The Code for leasing business premises confirms that negotiations and agreed terms should seek to 'achieve a fair balance between the parties having regard to their respective commercial interests'. Negotiations will also need to take account of the existing lease terms and the provisions of the 1954 Act.

Offers to settle: there are two types of offer to settle lease renewals that can be served by either party: a Calderbank offer – whose name derives from Calderbank v Calderbank [1976] Fam 93, [1975] 3 All ER 333 (EWCA) – or a Part 36 offer. Always take advice from a solicitor as to which type is more appropriate, and request that the offer is served by the solicitor. In brief, however, a Part 36 offer is costlier, and more restrictive in the terms that can be offered.

Professional arbitration on court terms (PACT): this is a form of alternative dispute resolution (ADR) that should be considered ahead of legal proceedings, and courts look favourably on parties that do so. The third-party professional used can either be an arbitrator or an independent expert. 

Qualification: under section 23 of the 1954 Act, the premises in a tenancy must be occupied by the tenant for business purposes. A good acronym to remember is BOT, which stands for business, occupation and tenancy. Furthermore, the tenancy must not be a licence, tenancy at will or an excluded tenancy. Section 43 of the act covers this.

Reading leases: being able to read and summarise a lease accurately is a key skill for any surveyor. This includes being aware of key lease terms such as repair, rent payment, lease term and break options, and being able to summarise what the lease says and what the implications of these terms are for the client. Using a template lease summary is essential to ensure that candidates do not miss any key terms.

Statutory declaration: under section 38, the parties can contract out of the 1954 Act. This means that the tenant will not have security of tenure or the right to a new lease at expiry. Some landlords may wish to do this to ensure they can secure vacant possession of a property in the future, without recourse to the act. Sometimes an ex-act lease can be negotiated at a lower rent, which would be of benefit to a tenant only wishing to occupy a property for a short length of time. The parties can contract out in one of two ways. The standard procedure is to have a simple declaration signed by the tenant with a 14-day cooling-off period, while the accelerated procedure entails them signing a statutory declaration – sworn in front of a solicitor or commissioner for oaths – within 14 days of the lease commencing. The lease should include specific wording confirming the agreement to exclude security of tenure. 

Twenty-five to twenty-seven: three kinds of notice can be served by landlords and tenants under the act in relation to the renewal or termination of the lease. The first is a section 25 notice, which can be hostile or non-hostile – that is, it can offer or oppose a new lease, respectively – and is served by the landlord. The second is a section 26 notice, served by a tenant to request a new lease. The last is a section 27 notice to quit, served by the tenant. Section 25 and 26 notices must give six to 12 months' notice, while a section 27 must provide at least three and can terminate the lease on the contractual expiry date at the earliest.

Understanding the parties: section 40 of the act allows the parties – or their solicitor – to understand who the landlord or tenant is; that is, to request this information about who the other party is. Either party can use the prescribed form to request information on who the competent landlord is, as defined in section 44, or to check whether the tenant occupies the whole or only part of the premises for business purposes.

Viewpoints: candidates need to be familiar with advising landlords and tenants alike in relation to the act; this is especially important at level 3 of the APC. Being able to stand in the shoes of either party allows candidates to give comprehensive advice and appreciate the implications of the various sections of the act for any legal proceedings.

Whole or part: under section 32, the tenant is only entitled to a new lease of their holding, that is, the parts of a building they occupy for business purposes. However, a landlord can still require that a new lease applies to the whole premises so a tenant cannot seek to reduce their demise and liability by reducing the space they occupy. A tenant may wish to reduce their demise to reduce outgoings or to give back surplus space. If a landlord has a use for this then they may agree to the request, e.g. redevelopment or own occupation.

Years: under section 37 of the 1954 Act, if the landlord obtains possession on section 30 grounds E, F or G then they must pay compensation for disturbance to the tenant. This is equivalent to the rateable value if the tenant has been in occupation for less than 14 years, or twice the rateable value if the tenant has been in occupation 14 years or more.

ZA: section 43ZA was added to the 1954 Act on 1 October 2015, meaning that tenants who are carrying on a business from their home will not acquire security of tenure rights.

 

Jen Lemen FRICS is co-founder of Property Elite
Contact Jen: Email

Related competencies include: Landlord and tenant

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