It`s important to know early whether the lease you`re taking will be awarded or not, and what room for negotiation there may be so you can decide if it works for you and your business. A landlord can only refuse to grant a new lease in certain circumstances. The « subcontracting » of the law means that the tenant waives this right of extension – a stay is only possible if he accepts a new lease with the owner. If this is not the case, the tenant must leave at the end of his lease. When you take out a new or existing lease for your business, there are so many pressing questions to ask: how much rent do I have to pay, how long will the lease last, and whether I want to leave or sell my business. Thus, when the question « Is the lease entered into or not? » arises, it is all too easy to ignore it. However, it is very important for commercial tenants to understand the impact of an « outsourced » lease and the impact it could have on their plans for the future. The tenant, a perfume retailer with a number of shops in outlet shopping centres across England, had claimed that the warnings he had received regarding his various leases were invalid with no exact date. It put forward a number of arguments, including one based on the difference between the beginning of the lease « at the point of calculation » and the beginning « at the point of interest » – a distinction in land law that prevents the tenant from being held liable for acts or omissions that violate a lease that took place before the execution of the lease, even if the duration of the lease has been backdated. Although the s.38A procedure is a very useful device for the owners, it must be carried out with care and attention, both in terms of communication and explanation as well as the form of the lease. Since exclusion has a significant impact on a tenant, there is a possibility of measures to call into question the validity of the procedure carried out.
In that case, the High Court ultimately concluded that the leases had been validly concluded, and this approach confirms current market practice. When these leases expired, the owner decided not to grant extensions, but to lease the business to a competing perfume merchant. The Fragrance Shop wanted to prove that the six leases were protected by the 1954 law. A landlord and tenant may agree that the tenant of commercial premises is not legally entitled to a lease extension at the end of the term. This is called « subcontracting ». This means that if the terms of the 1954 act have actually been excluded, the tenant must negotiate an extension lease with the landlord if he wishes to keep his job. If the 1954 law has not been effectively excluded from the rental conditions, all is not necessarily lost. It is possible to negotiate a tenancy that will later be excluded from the 1954 Act, often in exchange for other modifications or consents to the terms of the lease that may be requested by a tenant. When choosing new business premises, especially for the first time, you should take a close look at the area where you want to start your business and see what options are available for rent.
If you find that there is a good mix of « outsourced » and « contracted » leases, you should think about how the other terms compare, for example. B the rent charged and the duration of the lease offered. You must then decide whether the terms of an « outsourced » lease are really worth giving up your legal rights to security of tenure. In 2004, a mechanism was introduced that allows a landlord and tenant to opt out of property protection provisions without first having to obtain a judicial explanation. It applies to tenancies « for a certain period of years » only if a « warning » is served on the tenant « in the prescribed form or essentially in the prescribed form ». The tenant must then make a simple or legal statement, according to how long before the entry into force of the lease, he received the notification that he has received the warning and accepts the consequences. Landlords argued that the request for an exact date was overly prescriptive and violated the stated policy objectives of simplifying the procurement process while ensuring that the tenant receives a fair termination and accepts the consequences of signing the contract. They pointed out that in reality, warnings and affidavits are often issued before the exact effective date of the lease is known. A side effect of outsourcing is that the tenant is not entitled to compensation at the end of the rental period if he leaves – even if he actually loses the goodwill of his business by leaving. The Fragrance Shop, a major national perfume retailer, entered into leases in six designer stores and, in each case, the subcontracting procedure was followed. The Landlords and Tenants Act of 1954 automatically gives tenants who use a property for business purposes the right to renew their lease at the end of the lease period – provided they are still operating their business from the property at the time of renewal. Second, the High Court considered alleged misrepresentation in the affidavits due to the failure to set a fixed date for the granting of the lease.
When we talk about an « outsourced » or « unprotected » lease, we are referring to a lease for commercial premises that has been excluded from the security of ownership provisions of the Landlords and Tenants Act, 1954 (the 1954 Act). 2. The tenant makes a simple or legal statement to recognize that he understands the consequences of entering into a contract. A simple declaration can only be made if the tenant has received the warning at least 14 days before the rental contract is issued. Thank you, Phil. And we will discuss change clauses with the guarantors and a possible exemption from their responsibilities in connection with the changes made at our meeting. Thank you for joining us. If you have any questions about the points we are discussing, please contact us and you can also sign up for future TLT trial sessions. The 1954 Act is the most important commercial lease act in England and Wales. The decision, which was delayed by almost a year due to the Covid-19 pandemic, was therefore eagerly awaited by landlords and tenants. Thank you Phil.
There may also be tax implications to consider, and I will address in another session the tax issues associated with amending leases and introducing lock-in clauses. Now, in our session on developing a pandemic, we dealt with pause clauses. Tenants with existing leases may want to change their lease and include an option break. Maybe if their business model has changed as a result of the pandemic and they think they won`t need premises in the future. We discussed extending the term, even though it was documented by a certificate of variation, which would amount to capitulation and re-emergence. Is the same true for amending the lease to include an option to discontinue? The landlord`s warning must be issued 14 days before the tenant`s contractual obligation to conclude the rental agreement. This effectively serves as a cooling-off period for the tenant to consider their position. After the expiry of the 14-day period, the tenant can make a simple declaration. However, if the parties are unable or unwilling to wait 14 days, the tenant may sign an affidavit that must be signed and certified by independent counsel.
The latter is often the process used, as these are good practices to ensure that the procedure is completed as close as possible to the time when the lease in question is in the final agreed form and that no further changes are made. Well, Alex, extending the lease term is tantamount to a supposed capitulation and return. This means that even if you document it by an act of modification, it will take effect in court as a waiver of the existing lease and grant of a new one. This can lead to special problems if the lease is to be entered into under the security provisions of the Landlords and Tenants Act 1954. Indeed, the legal procedure that was carried out in relation to the existing lease does not apply to the lease granted by the accepted redemption and holder. The tenant would also have to pay a property tax on stamp duty when granting the new lease agreement, but if the conditions are met, he can claim an overlapping rental agreement. For these and other reasons, so-called capitulations and reappearances must therefore be avoided or at least treated with great care. The Article 38A mechanism was introduced in 2003 (amending the procedure established in 1954) and allows the parties to agree that a lease excludes the safety of tenants. The exclusion of these provisions means that a landlord can repossess his property without having to justify his actions by a specific loss of tenant or other non-culpable reasons. Without excluding section 38A, a landlord is more likely to have to go to court to recover ownership.
The exclusion also removed the landlord`s obligation to pay compensation if possession is restored through no fault of the landlord. For these reasons, it can be seen that the exclusion of section 38A is potentially a very useful tool for a landlord and that it will be important that it is done correctly. Why would your new landlord want to deny you this right? It is common for landlords and tenants to want to incorporate some flexibility into a lease. The landlord may be concerned that as a relatively new business, you won`t be able to pay rent monthly or quarterly, or the landlord may want to keep more control over who occupies their premises. When a tenant is offered a lease on a « subcontracted » basis, this is usually reflected in the rent, which is calculated due to uncertainty for the tenant as to what might happen at the end of the lease`s term. .