The options for tenants when choosing a lease

Leaseholds pose a difficult challenge for many licensees as the lower price can be attractive, but the insecurity of being in rented premises can be a major worry. 

If you are a tenant of business premises you have a right to renew your lease when the term ends under the Landlord and Tenant Act 1954. You also have the right to remain in occupation and apply for the grant of a new lease.

However, the parties can agree to exclude the rights of renewal under the Act at the outset of the lease, which means the tenant then has no right to renew when it expires. There are a number of interesting aspects to this.

There are circumstances where a landlord may re-quire exclusion of renewal rights, as an added protection. This may be the case where part of a property is being let or there is a like-lihood the property will be redeveloped or sold with vacant possession in the future.

However, even within the Act a landlord can still obtain possession on specific grounds. These include the landlord wishing to occupy the premises himself, re-development, persistent breaches by the tenant, proposed sale or letting of the whole property and offer of alternative accommodation.

The main difference within the Act is the landlord may have to prove one of these grounds and apply to court for possession and, if the landlord wishes to occupy himself, he has to have owned the property for at least five years.

The Act also sets parameters for new lease terms including rent and length. The rent is open market rent as defined in the Act and can be set by the court. If the lease has been excluded, the tenant has the option of walking away if the terms offered are too onerous.

A proposal during letting negotiations to exclude the Act may result in some prospective tenants withdrawing or seeking compensation in terms of a lower rent. In general if a property is being held as a long term investment and is self-contained, exclusion from the Act is probably not applicable but if a property owner is just seeking rental income for a few interim years, exclusion of the Act would be appropriate.