Part II of the Landlord and Tenant Act 1954 provides security of tenure for a tenant who occupies property for the purposes of a business carried on by him The security provided by the Act cannot be excluded by agreement except in accordance with the procedure set out in the Act. The current procedure is a two stage process involving a notice by the landlord and a declaration by the tenant and is a system that most property professionals are now familiar with. The Regulatory Reform (Business Tenancies) Order 2003 put this process in place and prior to this the method for excluding the Act involved an application to and an order from the County Court.
When a tenant benefits from the security of tenure provided by the Act the tenancy does not come to an end unless it is terminated in accordance with the Act. In essence the Act requires a landlord to serve a notice determining the tenancy and claiming (and, if necessary, subsequently proving in Court) that one or more of grounds specified in the Act apply, for example, the landlord intends to demolish or reconstruct the premises.
An excluded tenancy is very useful for the landlord when he needs to be certain on the grant of the lease that he will be able to get the tenant out at the end of the term.
A tenancy can only be excluded from the Act if it is to be for a "term of years certain".
The Newham Case
The recently reported case of The London Borough of Newham v Ngozi Thomas-Van Staden considered the validity of a County Court Order obtained in respect of a lease dated 9 January 2004.
The Court of Appeal in Newham decided that the term granted was not a term of years certain and could not therefore have been the subject of a valid Court order.
The reason for the Court's decision related to "words of extension" which were included in the lease. The lease described the term as follows: "...from and including 1 January 2003 to 28 September 2004 (hereinafter called "the term" which expression shall include any period of holding over or extension of it whether by statute or at common law or by agreement)".
The Court accepted that there were alternative meanings of the "words of extension". "One possibility is that they were doing no more than to provide that, during any period of holding over or extension, the parties were to be regarded as continuing to be bound by the provisions of the lease". However, the decision was that "their essential effect was to define the term as including any such period of holding over or extension". On that basis the tenancy was not for a "term of years certain". Therefore the term created by the lease could not be contracted out of the 1954 Act and the tenancy could only be determined by notice under the Act.
If a landlord were to find that the lease was not excluded from the Act and the landlord could not prove one or more of the grounds for possession specified in the Act, then the landlord might find himself obliged to grant a new tenancy to the tenant without the absolute discretion which the landlord no doubt anticipated being able to exercise at the end of the tenancy had it been excluded from the Act. In these circumstances the tenant would not be required to vacate at the end of the contractual term and could seek a new tenancy or an inducement from the landlord to vacate.
What action should a landlord take?
- Existing leases: where a lease has been granted with the intention of excluding security of tenure you should check the wording of the clause defining the term of the lease to see whether it includes anything similar to the "words of extension". If it does then there may be a risk that the tenant may have security of tenure despite the original intention.
- Granting a new lease: ensure that the definition of the term is simply for a term