Terminating a lease

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Date added: 17-06-26

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The situation that has arisen in regards to the property, and subsequent town planning of the area, has presented a number of issues in regards to the possible renewal, or termination, of the current lease agreement. It has been mentioned that the current agreement for part of the property is due to end in May 2006; however the future of the industrial estate is unclear in the short to mid term. The other property (small units) is currently unoccupied, and the client wishes to earn income from them without committing to a long term lease (i.e. no further than 2011). Therefore it can be concluded that the ideal result would be to terminate the lease on the large ex-agricultural property so as to consider immediate redevelopment in line with the B1 zoning on the UDP, while producing short term leases that will generate some income (at least) while the other property is being redeveloped. In regards to the termination of lease agreements, there can only be termination if one of the relevant provisions of the Landlord and Tenant Act 1954 are satisfied. These are outlined as follows:
  • The tenant issuing a notice to terminate under section 27;
  • The landlord issuing a notice to terminate under section 25;
  • The tenant requesting a new tenancy under section 26;
  • By mutual agreement between landlord and tenant for a new tenancy, which would annul the current arrangement.[1]
These statutory provisions become problematic in this scenario, as any notice served by the landlord to terminate the agreement must be served during a period of 6 to 12 months before the specified termination date of the original agreement. Therefore in this case, under the Act, the landlord cannot prevent the tenant from applying for a new tenancy given the lease ends in May 2006, but may challenge it based on one (or more) of the seven grounds in section 30(1). The most relevant to this case would be the ability to challenge any further requests by the tenant for a new agreement, on the basis of the landlord’s intention to undertake substantial construction and works on the site, which could not be performed unless the landlord had occupancy of the site.[2] Under common law, the landlord is required to provide proof of intention to the Court at the time of serving his counter-notice,[3] which can be demonstrated by providing proof of the local planning and zoning regulations that show the new zoning of the land. Should this avenue be explored, the landlord would also be entitled to apply to the Court for interim rent pending resolution of the lease, under section 24A of the Law of Property Act 1969. The rent is then paid from the date of the landlord’s counter-notice, as that is the later date of the two notices.[4] Given that the purpose of the termination of the lease is primarily for the landlord’s purposes, the question of compensation arises. Under section 37 of the Act, a landlord who succeeds in terminating the agreement under paragraph (f) of section 30(1) is required to pay compensation to the tenant. Given the original lease was a 15- year agreement, the compensation is due to be twice the value of what it would be for a tenant that might have had occupancy for less than 14 years,[5] which may be a point of reference for future lease dealings. In regards to the small units, it appears that a short term lease would be a good option, as long as the agreement provided an escape route for the landlord if the future of the property was not in favour of the tenant come 2011. Under the section 24 of the Landlord and Tenant Act, short-term agreements are not subject to the same termination provisions as longer term leases. This period is a term of 6 months.[6] One suggestion might be to negotiate ‘mini-leases’ with potential tenants, as the Landlord and Tenant Act does not apply to such short agreements. This might allow tenants to use the property for temporary or emergency purposes, and will avoid the landlord from having to pay compensation at the conclusion of the lease. These leases could then, obviously, be renewed every 6 months, and will only be subject to the law of contract, and subsequent contracts could only come into force by mutual agreement. It would be important, however, to ensure that every 6 months the new contract would annul the previous one, so as not to carry over into the jurisdiction of the Landlord and Tenant Act. This would give the landlord adequate flexibility to lease the property as he sees fit then, pending redevelopment, may be able to recommit to longer-term arrangements in the future. In summary, the two plans for the property that have been discussed seem to bode well with the landlord’s intentions. It gives the landlord the ability to terminate the agreement on the first property to immediately redevelop it in line with planning regulations, while also being able to generate short-term income from the other properties. The proposed solution demonstrates sound management of the estate, which is in the best interests of the landlord. While there is compensation to be paid, it is more beneficial for the landlord to have to pay this now rather than during the mid-term of a 15-year lease agreement. It is not recommended that the landlord enter into a new agreement on the ex-agricultural property at this stage, as a new agreement would see the Landlord and Tenant Act apply, and the process would need to be repeated, including compensation. Therefore, immediate redevelopment is recommended, while leasing out the six small units in 6-month contracts. Bibliography
  • Kälin, CH, International Real Estate Handbook (2005), West Sussex: John Wiley and Sons Limited.
  • Stapleton, T, Estate Management Practice (1981), London: The Estates Gazette Limited.
  • Landlord and Tenant Act 1954.
  • Law of Property Act 1969.
1

Footnotes

[1] Tim Stapleton, Estate Management Practice, 97. [2] Landlord and Tenant Act 1954, s 30(1)(f). [3] Stapleton, as above n 1, 99. [4] Stapleton, as above n 3. [5] Ibid. [6] Ibid, 97.
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