Leases that are "protected"
If a tenant has a "protected lease" it will have the benefit of security of tenure under the Landlord and Tenant Act 1954 ("the 1954 Act"). This means that the tenant is entitled to remain in its business premises when its lease expires and "hold over". Except in certain circumstances, the landlord is obliged to grant the tenant a new lease on generally no more onerous terms than the old lease.
If a tenant has protection of the 1954 Act, its lease will not automatically come to an end on the expiry of the lease term unless the tenant chooses to leave the premises on or before the final day of the term.
The importance of notices under the 1954 Act
Where a tenant wishes to remain in occupation of the premises after the expiry of the term of its lease, it should serve a notice on the landlord requesting the grant of a new lease if it wants the security of knowing that it has the new lease in place and that there is therefore no risk of the landlord bringing the "holding over" lease to an end by relying on one of the statutory grounds (for example that he intends to redevelop the site).
Alternatively, under the 1954 Act, the landlord may notify the tenant that it wishes to grant a new lease on stipulated terms and at a proposed rent. However, a landlord can also notify the tenant that it wishes to end the lease and not grant a new lease to the tenant (such notice being between six and twelve months) if it is able to prove one of the statutory grounds entitling it not to grant a new lease (for example that the landlord wishes to redevelop the property or wishes to occupy the premises for its own use).
If neither party has served the necessary statutory notices to start the procedure for the grant of a new lease, the tenant who remains in occupation at the expiry of the old lease is entitled to "hold over" on the same terms and conditions as are contained in the old lease (including the rent which was payable at the expiry of the lease).
Where a tenant 'holds over' under its expired business lease (even if only by one day) and then wishes to terminate the "holding over" lease, the tenant must give the landlord at least three months' notice. All rents and monies due under the lease will continue to be payable until the three months expires and all lease obligations will apply until the expiry of the tenant's notice.
A tenant who is holding over will be liable to pay Stamp Duty Land Tax ("SDLT") for that period of time. Where SDLT was payable on the original lease, the holding over period is treated as an extension of the original lease until the new lease is granted or the lease is determined. It is necessary to recalculate the net present value ("NPV") at the beginning of every year of holding over and pay any (or further) SDLT due.
The rules and procedures in this area are complex and the time limits involved are strict so early specialist legal advice should be sought whether you are a landlord or tenant.
Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of advice. Please note: this article only applies to England and Wales as property in Scotland and Northern Ireland is subject to different rules.