What Is Security of Tenure in a Commercial Property Lease?

Key Points

● Security of tenure is a statutory right that allows a commercial property tenant to remain in their premises after the lease ends and to request a new lease on broadly similar terms.

● The protection is automatic for most commercial leases under the Landlord and Tenant Act 1954. A landlord can only refuse renewal on one of seven specific grounds.

● Security of tenure can be excluded before the lease is signed through a process called 'contracting out'. If this applies to your lease, you will have no right to renew it at the end of the term.

● The contracting-out process has strict procedural requirements. If they are not followed correctly, the exclusion may be invalid, and the tenant could retain the Act's protections.

● Whether a lease includes or excludes security of tenure is one of the most consequential decisions a small business tenant will face. You must talk to a Commercial Property Solicitor before signing.

Security of tenure is the legal protection that gives a business tenant the right to remain in their premises after the contractual lease expires and to request a new lease. It is granted by Part II of the Landlord and Tenant Act 1954 (the Act) and applies automatically to most commercial leases in England and Wales unless the parties have agreed to exclude it. In my experience, working with businesses in Solihull, a commercial property is more than just a premises, it is where customer experiences take place and goodwill is built up over many years. Security of Tenure is the Government's way of recognising how important stability and security are for the entire economy, as well as for small business owners.

How the Security of Tenure Works

Under sections 24 to 28 of the Landlord and Tenant Act 1954, a commercial property lease does not end when the contractual term expires. It continues on its existing terms until brought to an end by one of the methods prescribed by the Act. The landlord cannot lock the tenant out or refuse to accept rent simply because the lease has expired.

Either party can formally initiate the renewal process. A landlord who wants the tenancy to end serves a Section 25 notice, stating a termination date and indicating whether they will oppose a new lease. A tenant who wants to secure a new tenancy can serve a Section 26 request. If the parties cannot agree on terms, either side can apply to the court. The court can determine the terms of the new lease, or decide whether the landlord has established grounds to refuse renewal altogether.

When Can a Landlord Refuse to Renew a Commercial Tenancy?

A landlord with a protected tenant cannot simply refuse to grant a new lease. They must establish one of seven statutory grounds in Section 30(1) of the Act, which fall into two categories. Tenant fault grounds cover situations where the tenant has behaved poorly, such as failing to comply with repair obligations, persistently delaying rent payments, or committing other substantial breaches of the lease. No-fault grounds include the landlord's intention to redevelop the property or to occupy it for their own business use.

The Court of Appeal's decision in Gill v Lees News Ltd [2023] EWHC Civ 1178 confirmed that courts should consider the grounds of opposition under the Landlord and Tenant Act 1954 both individually and cumulatively, rather than taking a compartmentalised approach to each in isolation. Whilst the tenant succeeded in this case, the judgment makes clear that a history of relatively minor failings across tenant 'gault' grounds can be cumulatively weighed against a tenant, and that remedying breaches before trial does not automatically mean the court will order the tenancy to be renewed. Therefore, I advise my clients to keep up with their repair obligations throughout the tenancy, rather than doing them all at once at the end of the lease term.

Where the court refuses to grant a new lease solely on a no-fault ground, the tenant is entitled to statutory compensation, calculated by reference to the rateable value of the premises. Where the refusal is on a fault ground, no compensation is payable.

Contracting Out of Security of Tenure

Contracting out is the process by which landlord and tenant agree, before the lease begins, to exclude security of tenure. If a lease is validly contracted out under Section 38A of the Act, it ends automatically on the contractual expiry date. The tenant has no right to a new lease, no right to remain, and no right to compensation unless those things have been separately negotiated.

The procedure must be completed before the tenant is legally committed to take the lease. The landlord serves a formal warning notice that explains, in plain terms, that the tenant is giving up statutory renewal rights. The tenant must then sign either a simple declaration confirming receipt and understanding, or, if the notice is served fewer than 14 days before the lease is granted, swear a statutory declaration before an independent solicitor.

Protecting Your Position

When you receive heads of terms for a commercial lease in Solihull, one of the first questions your solicitor should raise is whether the proposed lease is inside or outside the Act. This single point shapes the balance of power between you and your landlord for the entire tenancy.

If the lease is contracted out, weigh carefully whether the business case for the premises still holds without renewal rights. A short-term contracted-out lease may be sensible for a new venture or a temporary location. For a business built around a specific address, such as a café, a specialist retailer, or a local professional practice, giving away the right to renew is a material commercial risk that deserves serious thought.

The steps that will best protect your position include:

● Ask at the heads of terms stage whether the lease will be inside or outside the Act.

● If the lease is contracted out, ensure you receive the warning notice well in advance of signing and take time to read it.

● Do not sign a simple or statutory declaration without understanding what you are agreeing to give up.

● Keep rent payments up to date and comply with repairing obligations throughout the tenancy to preserve your renewal position.

● Take legal advice at least twelve months before the lease expires to plan your renewal strategy.

Frequently Asked Questions

Does security of tenure apply to my commercial lease automatically?

Yes, it applies automatically to most commercial leases in England and Wales where the tenant occupies the premises for business purposes and the tenancy runs for more than six months. The only exception is where the parties have followed the correct procedure to contract out of the Act before the lease was granted.

Can my landlord refuse to renew my lease when my term ends?

No, not if the Act protects your lease. Your landlord can refuse to grant a new lease only for one of the seven specific grounds in Section 30(1). If they cannot establish any of those grounds, the court can order the grant of a new lease on broadly the same terms as the existing one.

What happens if the contracting-out procedure is done incorrectly?

If the correct steps were not followed, the contracting out will be invalid, and your lease will retain the full protection of the Act. The High Court confirmed in TFS Stores Ltd v BMG (Ashford) Ltd [2019] that strict compliance is required. If you have any doubt about whether the procedure was properly carried out, take legal advice.

Am I entitled to compensation if my landlord refuses to renew my lease?

Yes, but only if the landlord's refusal is based solely on one of the no-fault grounds, such as an intention to redevelop the property or to occupy it themselves. If the landlord successfully opposes renewal on a tenant's fault ground, such as a breach of the lease, no compensation is payable. The level of compensation where it does apply is calculated by reference to the rateable value of the premises.

Should I agree to contract out of the 1954 Act?

It depends on your business and the premises in question. A contracted-out lease is not always the wrong choice, particularly for a short-term let or where the location is less central to your business. Where the continuity of premises matters, contracting out is a significant concession that should be agreed only after taking legal advice. Once the lease is signed, the decision cannot be changed.

Speak to Pearcelegal

Pearcelegal has a dedicated team of commercial property solicitors based in Solihull, advising businesses across the West Midlands on commercial leases and all aspects of commercial property law. Whether you are taking on a new lease, approaching renewal, or trying to understand whether your lease is inside or outside the Landlord and Tenant Act 1954, we can give you clear, practical advice.

To make an appointment, please contact us on 0121 270 2700 or enquire through our contact form.

Please note that this article does not constitute legal advice.

Author: Tahira Khan, SRA number 656118

Tahira is a commercial property law and business law solicitor at Pearcelegal. She has over ten years experience in property law. She has been practising business law and commercial property law for five years, after graduating with an LLB from the University of West London and an LBC and LLM from the University of Law. Tahira is a member of the Solihull Chamber of Commerce.