Read this before signing a lease outside The Act

By Anthony Lorenz on 21/07/17

There is a growing tendency of Landlords wanting to contract outside the provisions of the 1954 Landlord and Tenant Act (Security of Tenure Provisions) to preserve the value of their assets. Particularly:

  • The ability to redevelop without a Tenant contesting their plans at Lease end.
  •  The avoidance of the Tenant holding over at the end of a Lease, at the old rent, until they pay the new rent, and the need to backdate a claim for an interim rent, where the Court costs could be higher than the benefit, if the Tenant serves a notice of discontinuance.
  •  The ability to substitute one Tenant with another at the end of the Lease, and put pressure on the existing Tenant to pay above market rent.
  • The ability to capture the Tenants improvements, and re-let their original building at a higher rent, fully fitted.

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However, there is a very simple way to give tenants protection and satisfy the Landlord namely: -  

  1. The Landlord grants a 10-year Lease. 
  2. He includes a Tenant’s option to renew their lease, by giving 9 or 6 months’ notice, prior to expiry.
  3. The Tenant renews subject to a first day upward only Rent Review.  
  4. The review would disregard Tenants improvements.
  5. Stamp duty is deferred 10 years, by documenting a 10-year Lease with an option to renew, rather than a 20-year Lease.
  6. The Landlord can refuse the Tenant's option to renew, if he genuinely wants to develop, or genuinely wants to occupy for his own occupation.  

There could be penalties in the event of the Landlord refusing the renewal, and not going ahead with either of these intentions.

Furthermore, an intention to occupy should be for his genuine owner occupation, and not in partnership with an operator. 

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 It is otherwise so easy for Landlords to extract high rents for example on restaurants, once the Landlord has been a competent Landlord for a minimum period of 5 years, as the Act provides, by linking up with another operator, and throwing his existing Tenant out of the accommodation.

 A JV suffices to do this.

So, in short, the middle ground whereby Landlords on major buildings wanting Leases outside the Landlord and Tenant Act can offer the opportunity as above, without devaluing their properties and give protection to their Tenants as the Act originally intended.

 

Topics: Commercial Property, Lease Renewal, News Article, The Lorenz Consultancy, Rent Review, Office Space, Investment, Leasehold Interest, Retail Letting, The Landlord & Tenant Act, Legal