Security of Tenure Commercial Lease UK

If you're renting a commercial property, you may have heard the term "security of tenure." But what does it mean, and how can it affect your lease, rights, and future plans?

Under Part II of the Landlord and Tenant Act 1954, security of tenure gives commercial tenants the legal right to stay in their premises after the lease expires. They can request a commercial lease renewal after their lease expires.

Whether you're entering a new agreement or approaching the end of your lease term, understanding security of tenure is key to making informed and strategic decisions.

Unsure about your rights under security of tenure? Speak to our expert commercial lease solicitors in London on 0203 417 3700 for expert legal advice.

Table of Contents

What Is Security of Tenure in Commercial Leases?

Security of tenure is a legal protection that allows commercial tenants in the UK to stay in their rented business premises even after the lease has expired. More importantly, it gives them the right to request a new lease under similar terms.

Security of tenure is a legal protection set out in Part II of the Landlord and Tenant Act 1954, which allows business tenants to:

• Stay in their commercial property after the lease ends, and
• Request a new lease on similar terms, unless the landlord has valid reasons to object.

This right gives businesses greater stability and continuity, helping them build long-term customer relationships, invest in the premises, and grow without the fear of unexpected eviction.

However, landlords and tenants can agree to exclude this right if they follow the proper legal steps.

Why Is Security of Tenure Important?

For business tenants, security of tenure is a crucial safeguard. It protects against unexpected lease termination and provides continuity, particularly when a location is integral to their operations.

Benefits include:

• Long-term stability
• Investment protection (e.g. shop fittings, renovations)
• Confidence to grow and plan ahead
• Avoiding the high cost and disruption of moving premises

For landlords, understanding security of tenure is equally important, as it affects property management strategy, asset value, and future development plans.

Key Aspects of Security of Tenure in Commercial Leases

Security of tenure is one of the most important legal protections for business tenants in the UK. It gives commercial tenants the right to stay in their premises after the lease term ends and to request a new lease. This right is governed by Part II of the Landlord and Tenant Act 1954, and it plays a key role in offering stability and peace of mind to businesses.

Here are the main things you need to know:

1. Right to Renew the Lease

Tenants who benefit from security of tenure have the legal right to request a new lease when the original one ends. The new commercial lease will usually be on similar terms to the previous agreement. This helps businesses stay in their existing premises and avoid the disruption and cost of relocating.

2. Automatic Legal Protection

Security of tenure is a statutory right, meaning it applies automatically to most business leases, unless both parties have followed the correct legal steps to exclude it. This means many tenants are already protected without needing to negotiate this right separately.

3. Option to Exclude the Right

Landlords and tenants can contract out of security of tenure, but only by following a strict legal process. This includes:

• The landlord serves a formal warning notice before the lease is signed.
• The tenant is making a declaration confirming they understand and accept the exclusion.
• The lease must clearly state that security of tenure does not apply.

Landlords often choose this route when they want greater flexibility with the property, such as future redevelopment or plans to sell with vacant possession.

4. Landlord's Grounds to Oppose Renewal

If a tenant requests a new commercial lease under security of tenure, the landlord can only refuse on specific legal grounds, including:

• Serious breaches of the lease (e.g. rent arrears or failure to maintain the property)
• Plans to redevelop the premises
• The landlord's intention to use the property for their own business

The landlord must provide evidence for their reasons, and disputes often end up being settled in court.

5. Court Can Set New Lease Terms

If the landlord and tenant cannot agree on the terms of a renewal lease, such as rent or duration, they can apply to the court to decide. The court will aim to reach a fair outcome based on current market conditions and both parties' interests.

6. Typical Lease Duration and Rent

When the court grants a new commercial lease, it can set the term for up to 15 years. Rent is usually decided based on market value, but does not take into account goodwill or tenant improvements unless agreed otherwise.

7. Business Continuity and Stability

Perhaps the most important aspect of security of tenure is the peace of mind it gives tenants. It ensures:

• A stable business location
• Protection for investments in the premises
• Better planning for the future

For landlords, understanding how security of tenure works helps in managing expectations, avoiding legal disputes, and making informed property decisions.

How Long Can a New Lease Be?

Under the Landlord and Tenant Act 1954, the court can grant a new commercial lease for up to 15 years. The duration is based on what is reasonable for the nature of the property and the business.

When determining the new rent, the court uses a statutory formula that considers current market value but ignores goodwill or tenant improvements, unless otherwise agreed.

When Can a Landlord Refuse to Renew a Commercial Lease?

A landlord can only oppose a tenant's request for a new lease if one or more of the following seven statutory grounds apply:

1. Breach of Repair Obligations: The tenant has failed to keep the property in a reasonable state of repair, breaching the repairing covenant in the lease.
2. Persistent Delays in Rent Payment: If the tenant has consistently paid rent late, even if eventually paid, this can be grounds for refusal.
3. Other Breaches of Lease Terms: If the tenant has breached other obligations in the lease (like subletting without consent), the court has discretion to decide whether these justify refusing a renewal.
4. Suitable Alternative Accommodation Available: The landlord can offer the tenant a different, suitable property as a replacement, potentially in the same building or area.
5. Property Needed for Subletting or Disposal: If the landlord plans to relet or sell the entire building and needs vacant possession, this can be a valid reason.
6. Intention to Rebuild or Redevelop: The landlord intends to demolish or carry out major structural work on the premises, making it impossible for the tenant to stay.
7. Landlord's Intention to Occupy the Property: The landlord wants to take back the property for their own business use.

Whether you're a landlord wanting to regain control of your property or a tenant trying to stay in your business premises, understanding the grounds for opposing lease renewal is essential.

Security of tenure is a complex area of commercial property law, and the consequences of getting it wrong can be significant. Working with a solicitor experienced in Landlord and Tenant Act 1954 matters ensures your rights are protected and the correct procedures are followed from start to finish.

Excluding Security of Tenure from a Lease

Landlords can also contract out of the Act altogether, meaning the tenant doesn't have security of tenure at all. However, this too involves a formal process:

• The landlord must serve a warning notice before the lease is signed.
• The tenant must sign a declaration confirming they understand and accept the exclusion of their rights.
• The lease must clearly reference that it's "outside the Act."

Even minor errors in serving or completing these notices can make them legally invalid, potentially giving the tenant unintended protection. That's why it's always best to get specialist legal advice.

Does Every Commercial Lease Have Security of Tenure?

Not always. Security of tenure automatically applies to most business leases that:

• Last longer than six months, and
• Involve the tenant using the premises for business purposes.

However, both parties can agree to exclude (or "contract out") these rights before the lease begins. This is often done when tenants want short-term flexibility or when landlords prefer to keep options open for redevelopment or sale.

What Happens When a Lease with Security of Tenure Ends?

When a commercial lease protected by the 1954 Act reaches the end of its term, it doesn't simply expire. Instead, the tenant enters into a period called "holding over", meaning they continue to occupy the property under the same lease terms until either party takes action.

The lease can then be brought to an end or renewed through:

• A Section 25 notice from the landlord, proposing new lease terms or opposing renewal (with valid legal grounds), or
• A Section 26 notice from the tenant, requesting a renewal lease.

These notices are strictly regulated. Getting them wrong can lead to serious consequences, such as losing the chance to regain possession or missing your window to negotiate favourable terms.

What Tenants Need to Know About Notices and Deadlines

If a landlord intends to end the tenancy, they must serve a formal Section 25 notice, either proposing new lease terms or stating their opposition to renewal. These notices must follow a strict legal format.

Important: Tenants must not ignore a Section 25 notice. Failing to respond could result in losing the right to remain on the premises. It's crucial to seek legal advice immediately.

Tenants who want to stay should serve a Section 26 notice to initiate the lease renewal process. This doesn't mean they're locked into a new lease; it simply starts the formal conversation with the landlord.

Can a Tenant Simply Leave at the End of the Lease?

Yes, a tenant can vacate the property at the end of the commercial lease term if they wish. There are two main options:

1. Leave on the expiry date without notice, or
2. Serve a Section 27 notice, giving the landlord at least three months' notice.

Note: To truly end the lease, the tenant must deliver full vacant possession. Leaving behind fittings, stock, or equipment may be enough to continue the lease unintentionally.

When Do Lease Renewal Disputes Arise?

Disputes often occur when the landlord and tenant can't agree on the terms of the new lease, such as:

• Rent or rent reviews
• Lease duration
• Break clauses
• Repair responsibilities
• Service charges
• Assignment or subletting rights

While most disagreements can be resolved through negotiation, some require a formal resolution process.

Options include:

• Court proceedings – where a judge determines the lease terms, or
• PACT (Professional Arbitration on Court Terms) – an alternative where an independent expert resolves the dispute, often faster and more cost-effectively than the court.

How Wembley Solicitors Can Help with Security of Tenure Matters

Whether you're a landlord trying to regain possession or a tenant seeking to renew your lease, it's crucial to get expert advice on security of tenure.

At Wembley Solicitors, our specialist commercial lease solicitors can help with:

• Lease strategy: Should the lease include or exclude security of tenure?
• Lease reviews: Is the lease correctly "contracted out" or protected?
• Serving or responding to notices: Including Section 25, Section 26, and Section 27.
• Lease renewal negotiations: Getting terms that reflect your commercial goals.
• Dispute resolution: Including PACT and court representation.

Speak to Our Commercial Lease Solicitors

Whether you're a landlord or a tenant, understanding security of tenure is crucial. Call Wembley Solicitors on 0203 417 3700 for expert legal advice.

If you're unsure about your commercial lease position or need help drafting or reviewing a commercial lease agreement, our experienced landlord and tenant solicitors are here to help.