A common problem which some landlords may be unaware of is the drafting of their company let agreement. Many landlords get into such agreements with the intention to let to a company, not considering whether that company will be then looking to use that property in connection with their business. Company tenants are seen by many landlords as the more secure tenant as they are more likely to pay rent on time. This is of course not always the case, which many landlords throughout the pandemic would have learnt. A business can fall behind on their rent payments as well.
It is so important for landlords when entering into agreements with company to really consider the wording of these agreements. What if the wording is such that it could be construed as a commercial lease? In such situations, the landlord must consider his options.
Common considerations for landlords in such instances when looking to evict the company tenant would be as follows:
- What is the purpose for which the company tenant was using the property?
- Has the lease been barred out of s24-28 Landlord and Tenant Act 1954?
- Is there a forfeiture clause in the tenancy?
- Has a Notice to quit been served on the company tenant?
- Is there a break clause in the tenancy?
What is the purpose of the above questions?
Essentially, where there is a company let agreement, the landlord can look to serve a notice to quit on the company tenant. Or, issue forfeiture proceedings during the fixed term of the tenancy. A notice to quit can be served in accordance with any break clause in the tenancy. Forfeiture proceedings can be brought where rent has been unpaid for 14 days. Additionally, there must be a forfeiture clause in the agreement. Also the landlord must not have waived their right to forfeit under the lease.
With regard to the notice to quit, this can only be served in the fixed term of the tenancy. On the basis of any break clause contained within the agreement. If there is no break clause or there is a one-off break clause at a point in the tenancy which has passed, the landlord must comply with section 5 (1 a and b) of the Protection from Eviction Act 1977.
Where the company tenant has sublet the property to other tenants and the landlord has not authorised this, the landlord can evict all unauthorised tenants. This can be done through standard proceedings in the county court along with the company tenant.
The complication is where the agreement can be construed as a commercial lease. Under a commercial lease, a tenant has the security of tenure pursuant to the Landlord and Tenant Act 1954. It essentially gives the tenant the right to request a new lease on the expiry of the fixed term. However, this would be under the same provisions as the original lease. Therefore, a landlord wanting to evict a tenant of a commercial lease must contract out of this automatic right of security of tenure. Or where this hasn’t been done, serve on the tenant a section 25 notice. This must be done at least 6 months before the fixed term expires.
By contracting out of security of tenure, the tenant must move out of the premises at the end of the lease. The tenant also has no automatic right to renewal and can only remain if the landlord offers them a new lease.
The problem for a landlord with not opting out and therefore serving a section 25 notice is that the landlord must specify the grounds upon which they oppose a renewal of the tenancy. And in this instance, the tenant may be entitled to compensation.
What can a landlord take from this?
It is crucial when letting to a company tenant to consider the above complications. And hence ensure that any agreement entered into is watertight and conveys the landlord’s intentions completely. Failing to do so can not only complicate the process, but become costly in terms of legal fees when looking to evict the tenant.