Do landlords fully understand the impact of a lease with security of tenure?

Should you be fighting to exclude security of tenure from your leases? A recent high court trial, McDonald’s Restaurants Ltd v Shirayama Shokusan Company Ltd, saw a landlord being ordered to pay compensation to a tenant for seemingly misrepresenting their intentions in terminating a security of tenure protected lease. 

Under the Landlord and Tenant Act 1954, there are several specific grounds under which a landlord can end a protected lease, but these are more difficult to exercise than would initially appear. Ground (g), which the landlord tried to use in this high court case, allows the landlord to take back a protected property where they intend to occupy it for their own purposes. However, the intention must be genuine and backed up with evidence. In this case, the landlord fully intended to occupy for business purposes, but it later transpired that, though the business name had been decided, the type of business was still somewhat in question. When the landlord had originally sought to end the current lease, they had suggested to the current tenant that their intended business use was already set. Whether this slight misrepresentation was intentional or not, it was enough for the court to rule in the tenant’s favour and order payment of compensation.

The court suggested that, had the landlord simply made their true intentions clear, the court may have instead ruled in their favour. But is this truly the case or would the landlord then be in a similarly difficult situation of trying to prove that they truly did have intentions to occupy, when they did not yet have concrete plans?

Landlords must think about future needs

We recognise the importance in securing a reliable tenant, but should this be at the cost of possibly losing control of your most precious asset, down the line? Even the very shortest commercial leases granted with the protection of security of tenure could potentially be renewed and continue for decades, with little room for negotiation as to terms. If the circumstances on a development change (perhaps you need to start charging a service charge where you once did not), it is unlikely that the lease can be forced to change along with it. 

How can Moore Barlow help landlords?

You need to be clear about the grounds for ending a protected lease, and the extent to which they are actually exercisable, before agreeing to grant such a lease. Be in the know about what those grounds are and how likely you are to be able to exercise them if you need to. Take legal advice to ensure you are not making assumptions or rushing into decisions that could affect you both long term and short term.

Our expert team of commercial lease lawyers will provide you with specialist support to ensure everything runs smoothly. Whether you are a landlord or tenant, it is important that you have the best commercial lease legal support when making key decisions for you and your business.