The rules of repossession of property with commercial premises
The rules for repossession of commercial and residential properties are different with varying requirements for each procedure. In certain circumstances, commercial properties can be repossessed by peaceful re-entry by the landlord whereas residential property will almost always require a Court order to obtain possession.
Commercial properties with a residential element will also require a different procedure which is why any landlord or tenant of a mixed-use or commercial property, who are unaware of their position and considering or facing the threat of repossession should take legal advice. Our property experts at Abacus are here to explain a few of the rules regarding commercial premises.
Renewing a commercial tenancy
The Landlord and Tenant Act 1954 governs leases of commercial property and gives a tenant a large scope of entitlement to renew the lease and stay in the property after the end of the lease term. Tenants with this protection can continue to stay in the Property on the same terms as the expired lease unless some action is taken by either party.
Parties to a lease can contract out of the relevant legislation, however, this needs to be clearly stated within the lease and certain declarations are required to be signed by the tenant illustrating that they appreciate the implications of contracting out of the protection afforded by this legislation.
The Courts can assist in cases where the tenant wishes to remain in the property but the landlord doesn’t want to create a new lease. In these circumstances, the Court can grant a number of orders including the creation of a new lease. This is completely different to residential property where the Courts would be unlikely to force a new tenancy on an unwilling landlord.
Under the Landlord and Tenant Act 1954 a tenant who wants to enter into a new commercial lease of the Property should initially serve a written notice to their landlord, stating that they wish to stay in the property after the original lease ends and provide suggested terms. This notice should be served not less than 6 months from the date of termination specified in the notice.
If terms of a new lease are not agreed the parties can apply to Court for determination of the same.
Ending a commercial tenancy
As a tenant with the protection of the legislation has the security of tenure, the landlord does not have the automatic right to re-enter and repossess the property at the end of the term.
The possession procedure for mixed-use or commercial property tends to be much longer than it is with residential. It can be a lengthy process in contested cases where the tenant does not want to leave the property, or when a new lease cannot be agreed upon. In both cases, the Court may be the only solution to resolve the issue.
A landlord who desires to end a commercial lease must provide the tenant with written notice of at least six months before the intended termination date. As well as stating the date on which the lease ends, the landlord should indicate whether they are open to the creation of a new tenancy. These notices have strict requirements and legal advice should be sought as to the validity of the same.
The tenant will have two months to reply to the notice. If the tenant fails to reply in those two months or an agreement as to the terms of a new lease is not reached the tenancy will cease on the given date within the notice. Given the consequences of the expiry of the landlord’s notice, a tenant must apply to Court prior to the expiry of the notice to protect their position.
The tenant is able to end the lease by leaving the property at the end of the term or alternatively serving its own notice at least 3 months prior to the date which they intend to leave.
Applying to a court for a new tenancy
If the landlord has served a termination notice but the tenant wishes to stay in the property, they must apply to Court for a new lease. There are many grounds as to why a landlord may object to a new lease, such as:
- The tenant has allowed the property to fall into a state of disrepair.
- The tenant is consistently late with paying the rent. The Court will take into account whether the tenant can pay in the future, the impact it had on the landlord and why they failed to pay rent in the first place.
- The tenant has breached multiple terms of the lease.
Having listened to arguments put forward by each party, the Court will decide whether a new lease should be granted and will also help each party establish the new terms necessary to move forward.
Forfeiture of the lease
In some cases, a landlord may be able to submit forfeiture of lease due to a breach by the tenant. For a landlord to be entitled to forfeit the lease, the lease must specifically give the landlord the right to forfeit if a particular breach occurs.
Dependant upon the reasons for forfeiture the landlord may be required to serve a formal notice upon the tenant warning them of the intended action and providing them with an opportunity to correct any breaches of the lease.
If the breaches are not corrected or the reason for forfeiture of lease is due to rental arrears alone, the landlord could seek to peacefully re-enter the property and change the locks in order to recover possession. Peaceful re-entry, although ideal usually comes with numerous issues and risks and therefore in most cases of forfeiture a landlord will usually apply to the Court for a possession order.
The tenant is able to apply to Court for relief from forfeiture. The Court will consider the case and any application for relief and determine whether the lease can be forfeited and whether to grant the landlord possession of the property.
Alternatively, the Court could set a number of conditions and obligations upon the tenant which the tenant will have to comply with to avoid the lease being forfeited. If the tenant fails to comply with the requirements for relief or does not apply for relief from forfeiture, the landlord is usually entitled to possession of the property.