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What is a Tenancy?
A tenancy is an "estate in land", granted for a determined
period of time (term of years or fixed term - 6 months,1 year,
21 years, 99 years etc) or a specific period (a periodic tenancy
- yearly, monthly, weekly, even daily).
In return for the "time limited" but
exclusive use and possession of the land (and any building/s
on the land) the tenant pays his landlord a rent.
The landlord may be the freeholder (owner for
life - life tenant) or a tenant himself. e.g.:
Freeholder (owner) Landlord grants tenancy to:
Tenant A (Head lease holder)
Tenant A grants a tenancy to "B" (sublease holder)
Tenant B grants a tenancy to "C" etc.
So long as each subsequent sublease is shorter
that the previous one there is no problem.
To all intents and purposes, whilst a tenancy
is in force, the tenant occupier is the owner of the land and
can act as any other owner would, so long as it's within the
terms of his lease agreement and current statutory requirements
(Acts of Parliament)
The Business Lease or Commercial Tenancy
Unlike residential tenancies, the main Acts
of Parliament only affect business tenancies when they come
to an end. At this stage the Landlord & Tenant Act 1927
Part I and the Landlord & Tenant Act 1954 Part II may apply.
Up until this point business tenancies are governed
by the general law of landlord & tenant which is common
law (contractual) as enhanced by statute.
So disputes during the term of the lease (interpretation
of covenants, sub-lettings and assignments etc) will be reviewed
by the courts according to precedent and any statutes affecting
that particular covenant.
The business tenancy legislation is mainly used
to solve problems of security of tenure and grounds for possession
at the end of a tenancy.
The Landlord & Tenant Act, in effect, sets
out a set of rules governing security of tenure for business
tenants. Unless a business tenant fails to pay the rent, or
breaks some condition of the tenancy, the landlord can only
bring the tenancy to an end under certain specified conditions,
and after serving a special notice.
When a notice of termination has been received
by the tenant she has the right to apply to the court for a
new tenancy and the court must grant one unless the landlord
can show he is entitled to possession.
There are a limited number of grounds upon which
a landlord can claim possession at the end of a business tenancy
What
is a Licence?
A
tenancy gives the tenant a legal interest in the land - in effect,
legal ownership for the period of the tenancy. The tenancy can
even be sold (assigned) to another tenant.
The
grant of a license does not create an estate in land and the
licensee does not gain an interest in the property, purely permission
to occupy it.
The
security of tenured afforded to tenants on business leases does
not apply where the premises can be shown to be held on a license.
See Licenses.
Letting
outside the Landlord & Tenant Acts
There
are several instances where the tenant may not have the security
of tenure protection of the Landlord & tenant Acts.
Agricultural
tenants, service tenants (tenancies connected with employment)
and where premises are used for business, even though this is
prohibited by the terms of the tenancy.
Where a tenancy is for a fixed-term up-to six months, with no
right to extend or renew.
A tenancy sanctioned by the courts beforehand granted on the
specific understanding that the protection of the Act shall
not apply. This in known as "contracting out of the Act"
Creating a Business Tenancy
A
tenancy can be created by the conduct of the parties and does
not need to have a written agreement to be legally binding.
Once
a person is given possession (exclusively) of land or property
(usually evidenced by possession of the keys) and the owner
accepts rent payments, a tenancy comes into existence legally.
Creating
tenancies on a casual basis such as this (even for friends,
perhaps especially for friends) is not the sort of thing any
sensible landlord would do! A written agreement or lease is
absolutely crucial to any successful tenant - landlord relationship.
Any
landlord (or tenant) without a written agreement is "in
the lap of the Gods" or, more specifically, the civil court
judges.
Unlike
residential tenancies, business tenancies tend to be set-up
on the caveat emptor principle, let the buyer beware. Landlords
generally try to get the best rent and the most favourable lease
terms they can, given the prevailing property market.
It's
up to the tenant to negotiate and question lease terms and rent
levels and to make sure there are no excessive obligations.
For
instance, if the property has defects and the tenant takes on
repairing obligations then he could be in trouble. Ideally tenants
need a survey prior to signing a Full Insuring & Repairing
Lease.
Tenants
in any doubt should seek legal advice.
The Institutional Lease
The
bedrock of the UK commercial property market has traditionally
been the 25 year Full Insuring and Repairing (FRI) lease with
perhaps 5 yearly upward only rent reviews.
This
type of lease has encouraged institutional investor landlords
such as pension funds to invest directly in property. It gives
them a guaranteed clear return on their investment, provided
of course they let to substantially reliable tenants.
Despite
a far less predictable business environment the modern standard
business lease, even for secondary property, is regarded as
an FRI lease with upward only reviews.
However,
now there is a trend towards much shorter terms and the use
of break clauses - the ability for the tenant (and sometimes
the landlord) to break the lease at some specified time) and
some are now questioning the up-ward only element in the rent
reviews.
Tenancy Agreement or Lease?
Ordinary
written tenancy agreements can be bought "off the shelf"
from various sources. see Tenancy Agreements
So
long as these agreements have been well drafted they often suffice
quite nicely for business tenancies. Experienced landlords and
agents often like to include specific clauses of their own,
and may have them prepared by a solicitor.
An
ordinary written agreement cannot be used for a tenancy exceeding
three years in length. Tenancies for longer periods need a lease
by deed.
Anyone
can draw up a tenancy agreement, but a lease by deed requires
a solicitor or licensed conveyancer.
Grounds for Possession
A
landlord can only oppose a tenant's application for a new business
tenancy on a limited number of grounds, where:
The
tenant has not sufficiently complied with the lease terms or
otherwise failed to behave properly as a tenant.
The landlord can provide suitable alternative accommodation
for the tenant.
The landlord may suffer financially when a sub-tenant occupying
only part of the premises gets a new tenancy.
The landlord requires possession to demolish the property.
The landlord intends to use the premises himself for a business
or a residence.
These grounds are by no means automatic and will often require
interpretation by the courts in specific cases. See the Landlord
& Tenant Act 1954 Part II for more detail.
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