Security of Tenure

For both landlords and tenants entering into a commercial property lease in England and Wales, security of tenure is one of the most important legal concepts to understand. Here is a breakdown of what security of tenure means, why it matters, and how landlords and tenants can agree to opt out of it.

What is Security of Tenure?

Security of tenure is a statutory right granted to commercial tenants under Part II of the Landlord and Tenant Act 1954.

If a business tenancy has security of tenure, it does not automatically end when the contractual term expires. Instead, the tenant has a legal right to:

1. Remain in the property after the lease end date.
2. Apply for a new tenancy on similar terms to the old one.

Why does this law exist?

The Act was introduced post-World War II to protect businesses from being abruptly evicted at the end of their lease, allowing them to build goodwill, secure a stable trading location, and avoid the high costs of frequent relocation.

How can a landlord regain possession?

Under a protected lease, a landlord cannot simply ask the tenant to leave because the contract ended. To regain possession, the landlord must serve a formal legal notice (a Section 25 notice) and oppose the renewal on very specific, strict statutory grounds, such as:

• The tenant has consistently failed to pay rent or maintain the property.
• The landlord intends to demolish or substantially reconstruct the building.
• The landlord wants to occupy the property themselves for their own business.

If the landlord cannot prove one of these grounds in court, the tenant is entitled to a new lease.

What does it mean to exclude security of tenure?

As the Landlord and Tenant Act 1954 heavily favours the tenant at the end of the lease, many landlords prefer to exclude or contract out of these statutory rights.

When a lease is contracted out, security of tenure is completely removed, meaning:

• At the end of the lease term, the tenancy simply expires.
• The tenant has no automatic right to stay or renew.
• If the tenant wants to remain, they must negotiate an entirely new lease from scratch, and the landlord is free to walk away or offer the property to someone else.

How to successfully exclude security of tenure

To exclude security of tenure, there is a strict procedure that must be followed before the tenant signs the lease or enters into an agreement to lease. If this procedure is done incorrectly, the exclusion becomes void, and the tenant accidentally gains full security of tenure.

The standard contracting-out procedure involves three main steps:

1. The Landlord’s Warning Notice: The landlord must serve a formal warning notice (known as a Section 38A Notice) on the tenant. This document explicitly warns the tenant that they are giving up their statutory rights to remain in the property at the end of the lease.
2. The Tenant’s Declaration: The tenant must formally acknowledge the warning notice by signing a declaration. If the lease is being signed less than 14 days after the warning notice was served, the tenant must sign a statutory declaration in front of an independent solicitor or commissioner for oaths. If there are 14 days or more between the notice being served and the lease being signed, the tenant can sign a simple declaration without a solicitor present.
3. Endorsement in the Lease: The lease itself must contain a specific clause stating that the landlord and tenant have agreed to exclude the provisions of sections 24 to 28 of the Landlord and Tenant Act 1954. Details of the warning notice and the tenant’s declaration must also be included.