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Landlords terminating a commercial property tenancy

View profile for Richard Hugill
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Landlords must exercise care when terminating a commercial property tenancy

If you are the landlord of commercial premises, there are situations where you will want to terminate a current tenancy at or following the end of a contractual term, even if your tenant is reliable and is not defaulting on rent or other obligations. For example, you may be looking to redevelop the building for other purposes, or to occupy it for your own use, or you may want to move to a new tenancy arrangement that updates requirements concerning rent payments, repair and reinstatement.

You should exercise care when seeking to terminate a tenancy of a commercial property with the intention of removing the tenant as, depending on the way a lease was drafted, negotiated and executed, it could have special protection through the Landlord and Tenant Act 1954.

Tenancies which have not been validly ‘contracted out’ of the provisions of the 1954 Act must be terminated for limited, specific reasons that are set out within that Act. Such tenancies are said to confer ‘security of tenure’. In other words, subject to a few exceptions, there is a presumption under the Act that commercial tenants have a right to remain provided they do not default on their obligations. It is really important that the correct process is followed in terms of actions, sequence and timing otherwise you may not only fail to terminate the tenancy but may also severely limit your future commercial options as well.

You also need to be aware that, in circumstances where possession is sought on grounds where the tenant is not to blame, you will also be liable to pay to the tenant compensation for recovering possession of the commercial property which you have let out.

When seeking to recover possession from the tenant on so-called ‘fault’ grounds, you should always consider the available alternatives, such as (for example) forfeiture by re-entry or legal proceedings, surrender or action taken against a guarantor, previous tenant, or guarantor of a previous tenant.  There are unique risks and benefits to each, depending on your particular circumstances.

The key message is that the termination of commercial leases and recovery of possession can be extremely complex so seek expert legal advice before serving a notice of termination.