These articles gives a general overview only and the legal position at the time of writing them. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print.

Brief Guide to changes to the Business Tenancy legislation - The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (“the Order”)

The Order comes into force on 1st June 2004 introducing a number of changes to Part 2 of the Landlord and Tenant Act 1954. To a large extent the changes are procedural and not substantive.

The Changes introduced by the Order

1.1 Definition of tenancy

There is no change to the basic definition of business tenancy to which the 1954 Act applies or to the definition of the holding (s23). There is no change in the definition of tenancies, which are excluded from the 1954 Act (s43).

The Order brings a material change in the following two situations:

(a) Where a company controlled by the tenant is in occupation or carrying on a business but the tenant is not: and
(b) a person with a controlling interest in the tenant company is in occupation or carrying on a business and the tenant is not.

This means the protection under the 1954 Act is extended to tenancies where the tenant and the business occupier are not the same, so long as one controls the other.

Articles 13 to 17 now widen the circumstances in which landlord and tenant can operate the statutory procedures of Part 2 so that an individual and any company he controls is to be treated as one and the same for the purposes of those procedures and that companies controlled by one individual is treated as members of a group of companies.

1.2 Continued requirement to serve a Section 25 Notice or Section 26 Request and to apply to the Court for a new tenancy

There is no material change to the provisions which continue a business tenancy and which (except where there is a tenant's notice to quit or surrender or a forfeiture) require the landlord to give to the tenant a Section 25 Notice in order to terminate a tenancy (Section 25). Where a Section 25 Notice is given by the landlord, or the tenant makes his own Section 26 Request for a new tenancy (Section 26 Request), then the tenant is still entitled to apply to the court for a new tenancy, and in the absence of agreement is still required to do so in order to maintain his right to a new tenancy.

Changes to: Prescribed Forms-Time Limit – Application for New Tenancy

New prescribed forms are introduced for Section 25 Notice and Section 26 Request. The present time limit of four month for applying to the court for a new tenancy is extended. There is a formal statutory procedure for extending the time limit by agreement. Both the landlord and tenant may now apply as opposed to the present law where only a tenant may do so.

1.3. Grounds of opposition to a new tenancy

The grounds of opposition to a new tenancy by a landlord will still be the same apart from one exception which will apply in the case where a landlord who does not intend to occupy the holding for a business to be carried out by him or it or as his residence, but, if an individual, whose company, or, if a company, whose controlling shareholder, does have that intention, such landlord will be able to rely on Section 30(1)(g) as a ground of opposition to a new tenancy.

1.3 Provisions as to duration, rent and terms of a new tenancy

The provisions as to duration, rent and terms of the new tenancy remain the same save for minor amendments. The maximum term of a tenancy ordered by the court is increased from 14 to 15 years to take account of the now more familiar rent review periods of 5 years.

1.5 Role of the court

This is not changed. The court will still determine the rent duration and other terms in the absence of an agreement.

2.1 Changes to the Contracting out provisions.

There is a new Section 38A which enables a prospective landlord and tenant to agree that the provisions of Section 24 to 28 of the 1954 Act are to be excluded in relation to the proposed tenancy. It will also enable an actual landlord and tenant to surrender an existing tenancy on such date or in such circumstances as may be specified in the agreement or on such terms (if any) as may be so specified. There is now no requirement for the Court to ratify.

The agreement in either case must satisfy certain statutory requirements or it will be void.

The following three requirements must be satisfied:

2.1.1 the landlord to serve a prescribed notice on the tenant at least 14 days before the parties enter into such an agreement.

2.1.2 The tenant must sign a simple declaration that he has received and accepted the consequences of the notice. If the parties wish to waive the 14-day period, the tenant will have to sign a statutory declaration, rather than a simple declaration, that he has received and accepted the consequences of the notice. In the case of an agreement to exclude security of tenure, the declaration must be made before the tenant enters into the tenancy or becomes contractually bound to do so. In the case of an agreement to surrender, the declaration must be made before entering into the agreement.

2.1.3 A reference to the landlord's notice, tenant's statutory declaration and the agreement excluding sections 24 to 28 or a reference to that agreement must be contained in the lease.

The forms of the notice, the simple declaration and the statutory declaration are set out in Schedules 1 to 4 to this Order.

2.2 Termination - Section 25 Notice under the Order

Currently a Section 25 Notice is not to have effect unless it is given not more than twelve nor less than six months before the date of termination specified in it. Under the Order this will remain a requirement but the date of termination specified in the Section 25 Notice assumes a new importance, for not only will it fix the date by which the current tenancy terminates, but it will also fix the date by which an application to the court for a new tenancy must be made. The existing time limit for such an application is four months, but it will become a new time limit of not less than six months under the new Order.

2.2.1 The requirement for tenant to serve counter-notice within 2 months to landlords Section 25 Notice terminating the tenancy is abolished.

2.2.2 It is mandatory (for the validity of the Section 25 Notice) in the case where a landlord does not oppose the grant of a new tenancy to set out the landlord's proposals to be comprised in the new tenancy, the rent to be payable and other terms of the new tenancy.

2.3 Application to the court by the tenant and the landlord

Currently only the tenant can apply to the court for an order for the grant of a new tenancy; the application must be made “ not less than two months nor more than four months after the giving of the landlord's Section 25 Notice or the making of the tenant's Section 26 Request”.

Under an amended Section 24(1) both the landlord and tenant will be entitled to apply to the court for a new tenancy. The application can be made only after the service of a landlord's Section 25 Notice or a tenant's Section 26 Request. Neither the tenant nor the landlord may make an application under Section 24(1) if the other has already made an application under a new Section 29(2) for an order for the termination of the current tenancy without the grant of a new tenancy and the application has been served. A landlord may not withdraw an application, which he has made for an order for the grant of a tenancy unless the tenant consents to its withdrawal. A landlord's application will be dismissed if the tenant informs the court that he does not want a new tenancy. On an application to the court for the grant of a new tenancy the court must make an order for the grant of a new tenancy and for the termination of the current tenancy immediately before the commencement of the new tenancy in accordance with Section 64.

2.4 Landlord's application to the court for the termination of the current tenancy without the grant of a new tenancy.

A new section 29(2) enables the landlord to apply to the court for an order for the termination of the current tenancy without the grant of a new tenancy either (a) if he has given notice under Section 25 that he is opposed to the grant of a new tenancy to the tenant or (b) if the tenant has made a Section 26 Request and the landlord has given notice under Section 26(6) within two months of the making of that request that he will oppose an application to the court for the grant of a new tenancy, stating the ground or grounds on which he will do so. An application by the landlord for an order for the termination of the tenancy should not be made however if either the tenant or the landlord has made an application for the grant of a new tenancy under Section 24(1).

A landlord who opposes the grant of a new tenancy on one or more of the grounds set out in Section 30 (1) may do so therefore either by making his own application to the court under Section 29(2) for the termination of the tenancy without the grant of a new tenancy or by defending a tenant's application to the court under Section 24(1) for the grant of a new tenancy.

2.5 The time limit for making an application

The present two month window ending four months after the date of service of the landlord's Section 25 Notice or the date of making the tenant's Section 26 Request is replaced by the requirement for application to be made either prior to the termination date in the Section 25 Notice or commencement date in the Section 26 Notice.

Agreement for extending the time limits

The new Section 29(B) gives statutory provision to extend the time limits for applying to the court. Where such an agreement is made under Section 29(B) the court may entertain an application if it is made before the end of the period in the agreement. The effect of an agreement made under this Section is that the Section 25 Notice or Section 26 Request is treated as terminating the tenancy at the end of the period specified in the agreement.

2.7 Interim rent

An interim rent is the rent that may be agreed, or determined by the court, to be payable after the contractual term has ended but whilst the tenancy is continued by statute until terminated. Currently only the landlord can apply to the court to fix an interim rent under s24 (A). The landlord had control as to whether and when he applied.

Under the Order, the tenant along with the landlord can make the application. It must be made within 6 months of termination or the right is lost.

2.8 Compensation provisions

Under the present law, the tenant has a right to claim compensation from landlords who successfully oppose renewal of tenancy under specific grounds where the tenant is not at fault (see Section 37). Articles 19 and 20 of the Order amend provisions relating to compensation. They amend the method of calculation of compensation where the tenant has occupied different parts of premises for different periods of time, and where different landlords control different parts. They also enable a tenant to claim compensation if he is induced not to apply to court, or to withdraw an application for renewal, because of a misrepresentation.

2.9 Request for Information

The Order introduces changes to the present Section 40 which increase the categories of information which a landlord and tenant can require the other to provide towards the end of a tenancy term, in order to enable effective use of the statutory renewal or termination process. They also impose an obligation to keep such information up to date for six months, make provision for parties, which transfer their interests and clarify the powers of the court where a party fails to comply with obligations to provide or update information.

2.10 Tenants' Section 27 Notices

Currently, in relation to fixed term tenancies if a tenant wants to quit up on the end of the term he will have to give notice in writing with at least 3 months notice expiring on the contractual expiry date. Where less than 3 months are left of the term then a 3month notice is given to expire on a quarter day.

Article 25 brings a new provision whereby the tenancy will not continue under section 24 where the tenant is not in occupation when apart from the section the term would have come to an end by efflux ion of time. This now provides a statutory footing for quitting up before expiry of the term. Where the tenancy continues under section 24 a 3month notice must be given but does not have to fall on a quarter day. The provisions allows for rental apportionment to give effect to the new provisions.

 

This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case.  Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print. For further information and advice, please contact Martin Evans, Nial Ledingham or David Halfhead on 0800 135 7917 or alternatively by email on Martin.Evans@lemon-co.co.uk, Nial.Ledingham@lemon-co.co.uk or David.Halfhead@lemon-co.co.uk.

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