Learning Outcomes
After reading this article, you will be able to explain and apply the law on business lease security of tenure in England and Wales. This includes statutory protection for tenants under the Landlord and Tenant Act 1954, how and when security applies, grounds for renewal or refusal, the processes of notice and application, and the practical consequences for both landlords and tenants. You will be able to evaluate scenarios, advise clients, and identify exam-relevant pitfalls.
SQE2 Syllabus
For SQE2, you are required to understand the principles and practical implications of security of tenure under a business lease, particularly as governed by statute. Carefully review and revise:
- the core statutory protection for business tenants under the Landlord and Tenant Act 1954, Part II
- which leases are protected and the scope of "business tenancy"
- the procedure for renewal, termination, and exclusion from security of tenure
- the relevant notice requirements, timing, and technical rules
- the grounds landlords may use to refuse renewal and consequences of opposing notices
- statutory compensation for tenant, and situations where compensation is (and is not) payable
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What does "security of tenure" mean under a business lease?
- Name at least two circumstances in which a business tenant does NOT have statutory protection for lease renewal.
- What process must a landlord follow to terminate a protected business tenancy?
- On what grounds can a landlord successfully oppose a tenant’s statutory right to a new lease?
Introduction
Business tenants in England and Wales may enjoy significant statutory rights when occupying premises under a lease, giving them a statutory right to renew the tenancy at the end of the contractual term, except in prescribed situations. This protection is known as security of tenure, which curtails a landlord's ability to retake possession and gives business tenants long-term stability. Practice in this field requires a clear understanding of when statutory protection arises, how it can be excluded, and the correct procedures for termination or renewal.
Key Term: security of tenure
Security of tenure refers to the legal right for a business tenant to continue occupying premises after the contractual lease term ends, except in specific circumstances laid out by statute.
Business Tenancy and Scope of Statutory Protection
Statutory security of tenure for business tenants is governed primarily by Part II of the Landlord and Tenant Act 1954 (“the Act”). The protection applies only to leases that qualify as "business tenancies": the property must be occupied by the tenant for business purposes (as defined in the Act), not merely sporadically or incidentally.
Key Term: business tenancy
A business tenancy is a lease or periodic tenancy of premises occupied by the tenant for the purposes of a business carried on by them (alone or with others).
Most commercial tenancies are protected by default unless expressly and validly excluded. The rights are broad: covered tenancies do not end automatically at expiry, and tenants may be entitled to a new lease on similar terms, unless the landlord can establish one of the Act’s limited statutory grounds for refusal.
Exclusion from Security of Tenure
Certain tenancies are excluded from statutory protection. These include:
- Tenancies at will (purely at the landlord's discretion)
- Farm business tenancies or agricultural holdings
- Service tenancies (e.g., caretaker accommodation)
- Mining leases
- Short fixed-term tenancies for 6 months or less, unless certain renewal conditions are met
- Premises occupied for business only incidentally (not substantially for business)
In addition, business tenants and landlords may contract out of statutory security of tenure.
Contracting Out: Statutory Exclusion Procedure
To validly exclude (contract out of) Part II protection, a specific statutory process must be strictly followed before the lease starts:
- The landlord must serve a statutory warning notice (in prescribed form) on the tenant, alerting them to the loss of renewal rights.
- The tenant gives a declaration acknowledging the warning and agreeing to exclude protection (a statutory declaration before an independent solicitor may be required if there is insufficient time).
- Reference to exclusion must be included within or endorsed on the lease.
Key Term: contracting out
The process by which landlord and tenant agree, following statutory formalities, to exclude the tenant’s right to security of tenure.
Worked Example 1.1
A landlord lets retail premises to a limited company for four years. The landlord serves a warning notice 21 days in advance and the tenant signs a declaration. The lease is endorsed with reference to the declaration. Is the tenant protected?
Answer:
No. Provided the above steps were strictly followed before the tenant became contractually bound, the Act’s protection will not apply and the landlord regains full rights to recover possession at expiry.
End of Tenancy: Termination and Renewal Rights
Automatic Continuation of Protected Tenancy
A protected business tenancy does not end automatically on the expiry of the contractual lease term. Unless the statutory process is followed, the tenancy continues under the Act’s provisions, called a "statutory continuation tenancy." The tenant may remain and only leaves if:
- statutory notices are properly served and
- required time periods are complied with.
Termination by Landlord: Section 25 Notice
To bring a protected tenancy to an end, a landlord must serve a section 25 notice on the tenant:
- Must be in prescribed form
- Must specify a proposed termination date (at least 6, but not more than 12, months after service)
- Must indicate whether the landlord opposes the grant of a new tenancy, and if so, specify statutory grounds
If the landlord does not oppose renewal, they must propose new lease terms. If the tenant and landlord cannot agree, either may apply to the court.
If the landlord does oppose renewal, they must specify one or more statutory grounds.
Key Term: section 25 notice
A statutory notice served by the landlord specifying the end date of a business tenancy and, if opposed, the grounds for refusal of a new lease.
Termination by Tenant: Section 26 Request
A protected business tenant may serve a section 26 request (in prescribed form):
- Must specify commencement date for new tenancy (at least 6, not more than 12, months ahead; cannot be earlier than expiry of contractual term)
- Must give proposed terms for the new tenancy
The landlord may serve a valid counter-notice within two months if opposing renewal, setting out statutory grounds.
Key Term: section 26 request
A statutory request served by the tenant proposing the terms and start date for a new business tenancy.
No Further Renewal Rights
The Act provides for only a single renewal right. After a new lease is granted or the tenant fails to act within prescribed deadlines, no further statutory protection subsists.
Landlord's Grounds for Refusing Renewal
A landlord may only oppose the grant of a new lease on specific statutory grounds, most commonly:
- Persistent delay in rent payment or substantial other breaches
- Suitable alternative accommodation is available
- Landlord intends to redevelop or demolish the property
- Landlord intends to occupy for its own business
- The tenancy is of a sub-part and letting the whole would be more beneficial
These grounds require detailed evidence and application to the court for determination.
Worked Example 1.2
At lease expiry, the landlord wants to refuse renewal to convert the property into flats. Can renewal be refused?
Answer:
Yes, if the landlord provides firm and settled intention, with a credible plan and necessary resources to redevelop, this is a valid redevelopment ground. The court will only permit refusal if the landlord proves the ground at hearing.
Court Process and Renewal Lease Terms
If opposed, the tenant may apply for a new lease and the court will determine (a) whether the landlord’s grounds are proven, and (b) the terms of the new lease if renewal is ordered.
If renewal is ordered, the court:
- Orders a new lease of the “holding” for a term not exceeding fifteen years
- Determines the open market rent, disregarding (among other things) the tenant’s occupation, goodwill, and voluntary improvements
New lease terms should generally follow the current tenancy terms unless a strong reason exists to depart.
Key Term: holding
The premises comprised in the current tenancy, excluding any sub-let part.
Compensation for Refusal
If renewal is refused on certain "no-fault" grounds (e.g., redevelopment, landlord’s occupation, suitable alternative accommodation), the Act entitles the tenant to statutory compensation, calculated by reference to rateable value and the length of occupation.
Worked Example 1.3
A tenant whose renewal is refused due to redevelopment has occupied the premises for 16 years. What compensation will they receive?
Answer:
Double the rateable value of the premises as statutory compensation, as the tenant (and its predecessors) has occupied the premises for more than 14 years.
Excluding New Security and Surrender
A tenant who is protected by Part II can agree to surrender the lease, but the agreement must be clear and properly documented. Alternatively, a new lease can be granted that is contracted out of statutory protection.
Key Point Checklist
This article has covered the following key knowledge points:
- Security of tenure under a business lease means statutory rights for renewal under the Landlord and Tenant Act 1954, Part II
- Most business tenants are protected by default, unless qualification requirements are not met or contracting out is valid
- Exclusion of protection is only possible if statutory warning notice and declaration procedures are strictly complied with before the lease
- Termination requires correctly served section 25 notice (landlord) or section 26 request (tenant), with notice periods observed
- Landlord can only refuse renewal if specific statutory grounds are proven; otherwise, a new lease must follow
- Courts determine renewal terms, rent, and, if renewal is refused on no-fault grounds, order statutory compensation for the tenant
- Mistakes in process or notice may deprive the landlord of legal grounds to recover possession
Key Terms and Concepts
- security of tenure
- business tenancy
- contracting out
- section 25 notice
- section 26 request
- holding