Commercial tenancies in England and Wales are governed by The Landlord and Tenant Act (LTA) 1954. A Section 25 Notice is named after the section in the LTA 1954 that includes the information that a Landlord needs to provide to the Tenant in order to terminate the business tenancy.
Security of Tenure gives the Tenant the right to be offered a new tenancy at the end of the term. This right was granted in The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003. It applies to tenancies unless the Landlord and Tenant agree to opt out of sections 24-28 of the LTA 1954 at the start of the Lease.
If the Landlord wishes the Tenant to leave at the end of the term or wishes to grant a new Lease on new terms, then a Section 25 Notice must be served within 6 to 12 months before the Landlord wants the tenancy to end. There are two types of Section 25 Notice that the Landlord could serve: one suggests a new tenancy on different terms and the other initiates the termination of the tenancy.
The Landlord can oppose a tenancy on seven grounds (A-G), which are stated in Section 30(1) of the LTA 1954 and are set out below:
- Tenant’s failure to repair
- Persistent delay in paying rent
- Substantial breaches of other obligations
- Alternative accommodation
- Subletting of part, where higher rent can be obtained by single letting of the whole building
- Landlord’s intention to demolish or reconstruct which cannot reasonably be done without obtaining possession
- Landlord’s intention to occupy the holding for his own business or as a residence
Where the Landlord serves a Section 25 Notice opposing a new tenancy, the Tenant may be entitled to compensation if it is on the grounds of E, F or G of Section 30 (1) of the LTA 1954. Statutory compensation is calculated on the rateable value of the premises. If the Tenant has been in occupation for more than 14 years, the amount of compensation is twice the rateable value. For less than 14 years, the compensation is 1x the rateable value.
If the Tenant does not respond to the Section 25 Notice that is served, then the tenancy will either continue on the Landlord’s proposed new terms or the tenancy will end on the specified date.
Either the Landlord or the Tenant can suggest a new tenancy. If the Tenant wishes to request a new tenancy, they would serve a Section 26 Notice within 6 to 12 months of the end of the term. If the Landlord opposes this request, they must respond within 2 months with a counter-notice, specifying the grounds on which it is opposed.
However, if the Landlord has already served a Section 25 Notice, the Tenant cannot serve a Section 26 Notice but instead would have to reply to the Landlord. Similarly, a Section 25 Notice cannot be served on the Tenant if the Tenant has already served a Section 26 Notice.
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