Inside or Outside?

My friend Pete always had hopes of opening his own restaurant and he found premises this week.  We had a chat about it.

I’ve found the perfect place for my first restaurant. The landlord’s agent wants to know whether I am expecting the lease to be inside or outside the Landlord and Tenant Act 1954. What does he mean?
This is what’s known as ‘security of tenure’.  If the lease is outside the Act, the lease ends automatically at the expiry of the contractual term. As tenant you will have no right to remain in the property and will have to negotiate a new lease with the landlord if you wish to stay.  The landlord doesn’t have to agree to this, meaning you could be forced to move out.

If the landlord does agree to grant you a new lease but his proposed terms are unpalatable to you and he refuses to compromise, there is not a lot you can do about it. You cannot apply to court to fix the rent or request better terms for the new lease and you won’t be entitled to compensation for having to vacate.

That doesn’t sound ideal.
No, it’s not great if you have plans to keep running your restaurant at the property in the long-term.  You won’t want to move premises and lose the goodwill associated with that particular location.

What if the lease is inside the Act?
That means the lease automatically continues at the end of the contractual term unless terminated by the process set out in the Act.  As tenant you can decide to end the lease if you wish or apply for a new one.  The landlord can only oppose granting you a renewal lease on limited grounds and you will have a legal right to a new lease provided that you are occupying the property for business purposes at the time, you are not in material breach of any of your lease obligations, and the landlord does not want the property back either for its own occupation or to redevelop it.  If the landlord wants the property back, it may need to pay you compensation.

Inside the Act sounds better for my plans, but what if terms cannot be agreed or the landlord opposes a renewal?
The terms of the new lease should be negotiated and agreed between the parties, but if no agreement can be reached then either party can apply to court to determine the terms.

If the landlord objects to granting you a new lease, then you can apply to court to challenge the landlord’s grounds for opposition, but any application must be made within the Act’s prescribed time limits or you will lose your right to apply.

You mentioned compensation?
If the landlord successfully opposes your lease renewal on one or more of the “no fault” grounds under the Act – that is, he wants the property back for his own occupation or redevelopment –  then the landlord will have to pay you compensation.

Any attempt by the landlord to exclude or reduce the payment of compensation will be void unless the property has been occupied by the tenant’s business for less than five years before the lease is terminated, or the tenant willingly agrees to this after the right to compensation has accrued.

So what now?
Inside or outside the Act is only one of the key issues to think about when negotiating a business lease. The Lease Code includes guidance on other important points, and I’d recommend you hire a property professional to help negotiate the best deal for you.