Leases Inside and Outside the Landlord and Tenant Act 1954: Renewing Your Lease Explained

If you are nearing the end of your commercial lease, whether you are a landlord or tenant, you may be wondering if your lease falls inside or outside the Landlord and Tenant Act 1954.

Leases that fall inside the Act generally mean you will have the right to stay in the property and renew the current lease if you are a tenant. As a landlord, you can refuse renewal if you are able to prove a valid reason for doing so. These reasons are limited, and it is important to ensure you receive advice before granting any lease to a Tenant.

On the other hand, if a lease falls outside the Act, the automatic right to a new lease is removed, and renewal will require new negotiations between both parties.

Here we explain what each option means and how it can affect you when it’s time to renew your commercial lease.

Leases that fall inside the 1954 Act allow tenants statutory security of tenure. This gives tenants the right to stay in the property even after the lease has expired.

Although, it’s important to remember that if the Landlord can prove they have specific legal grounds, such as redevelopment or needing to occupy the property themselves, they can refuse the renewal.

Landlords may also be required to provide statutory compensation, or, if both parties cannot agree on new terms, the court can decide fair terms for a new lease.
If a Lease falls inside the 1954 Act, the Tenant can serve a notice to the Landlord to request a renewed Lease on ‘fair’ terms. Unless the Landlord can prove the legal grounds above, it can be difficult to refuse the renewed term and can even lead to involvement by the court to resolve any conflict.

On the flip side, leases that fall outside the 1954 Act (often referred to as contracted out) means tenants do not have the automatic right to renewal. In order for a tenant to remain in the property, they must negotiate a new lease with the landlord or leave the premises completely. This gives the landlord more flexibility to amend the terms of the agreement or take the property back, regardless of the reason.

Dependent on your circumstances, contracting out may be the right option for your business; however, this must be considered carefully. In order to successfully contract out, there is a formal process that must be followed. If any part of the process is done incorrectly or missed completely, the lease will automatically remain inside the Act.

The process is as follows:
1. Warning Notice: Landlord must serve a notice informing the tenant of the potential implications of contracting out.
2. Tenant Declaration: Tenant must sign a declaration to confirm they understand and waive their security rights.
3. Lease Clause: The lease itself must clearly record that the parties agree to exclude the 1954 Act’s security provisions.

When looking at either option, it is clear to see the advantages and disadvantages both parties may face. For example, advantages for tenants when staying inside the Act include:

• Security of tenure
• Clear structures to resolve disputes on renewal.
• Access to judicial fairness if parties cannot negotiate.

Furthermore, landlords may prefer outside the Act leases as they provide:

• Easier exit if you want to redevelop or repossess.
• No statutory requirements when the lease ends.
• Easier turnover of tenants and term amendments.

Benefits for the tenants also include negotiations on modest terms, for example, shorter lease durations and incentives (rent-free periods). These may be offered by the landlord as compensation for the reduction in security.

Whether your lease sits inside or outside the 1954 Act, you must ensure you understand the implications, as it determines your future legal rights and business security on renewal.

If you are unsure if your lease falls inside or outside of the Landlord and Tenant Act 1954, or if you are looking at your options for a new lease, ask yourself the following questions:

1. Does your lease include a valid Contracting Out clause, Warning Notice and signed Tenant Declaration?
2. Is it a priority for your business, security of tenure or flexibility?
3. Have you sought commercial property legal advice to help avoid serious consequences?

Whether you’re a landlord seeking flexibility or a tenant wanting security, our Commercial Property team can assist you. For advice on a new lease agreement, lease extension, lease assignment or something else, get in touch.

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