Changing times for the property industry

Jo Thirsk has recently joined Raworths Solicitors in Harrogate and Knaresborough and specialises in commercial property law.

Landlord and tenant legislation relating to occupation of premises by commercial organisations has been in place in various guises for over 200 years. With the large number of leased premises in the Harrogate district, it is particularly important for those involved to be aware of any changes in legislation relating to such premises. 

A little known provision of the Landlord and Tenant Act 1730 can still be used by a well-informed landlord to gain a double "rent" windfall in certain circumstances where a tenant remains in occupation after the expiry of a landlord's notice to quit. However the more familiar legislation is contained in the Landlord and Tenant Act 1954 (the 'Act') which faced its first substantial change for 50 years with new provisions coming into effect from 1 June 2004. 

The emphasis in the property market is to make matters fairer and more straightforward for tenants (e.g. the Code of Practice for Commercial Leases) and the new rules confirm this trend. Regardless of the terms of a lease between a landlord and tenant, the tenant has an automatic right to renew the lease and remain in occupation at the end of the term unless the landlord can prove one of the specific termination grounds in the Act. 

Previously the landlord and tenant could apply jointly to Court to obtain a contracting out order excluding these provisions. The new rules simplify this procedure and it will no longer be necessary to obtain a Court Order. Instead, the landlord must serve a written warning notice on the tenant in a prescribed form at least 14 days before the lease is completed. The notice explains the implications of contracting out and recommends that the tenant obtain professional advice. The tenant must then sign a simple declaration confirming that it has received the notice before the lease is completed. 

Where completion of the lease is urgent, there is a procedure allowing the tenant to sign a statutory declaration before a solicitor that it has received the warning notice and has accepted its consequences. These new rules simplify matters and avoid the need for a court fee. 

A further change brought about by the new rules is a simplification of the notice procedures at the end of the lease. Previously the landlord could serve a Section 25 notice stating whether the landlord intended to oppose an application for a new lease or not. The tenant then had to serve a counternotice and apply to Court for a new lease within very strict timescales. If it failed to do so it would lose its rights to apply for a new lease. This was a considerable trap for an unwary tenant. 

The requirement for a counternotice has now been abolished and the time limits for applying to Court have been relaxed. This protects tenant rights and provides a greater period within which the parties can negotiate a new lease without incurring Court time and costs. Under the new rules, the landlord can still serve a Section 25 notice but it must be in one of two alternative forms; where the landlord does not oppose renewal and where it does. If it does oppose renewal the notice must set out the grounds for opposition. The landlord is also now able to apply to Court for the new lease or for termination. 

Another trap for tenants removed by the new rules is, if a tenant did not vacate on the contractual termination date, it had to serve 3 months' notice to expire on a quarter day. Now the 3 months' notice can be served at any time to expire on or after the contractual expiry date and the tenant's liability under the lease will terminate at the end of the notice. 

There are several changes to the rules on the rents payable pending renewal of a lease which reduce any incentive for the parties to delay renewal proceedings and the amount of rent will be fairer to both parties. These rules come at a time of great change for the property industry e.g. disability discrimination, asbestos regulations, a complete overhaul of Land Registry requirements, proposals for new tax efficient vehicles for holding property and the new stamp duty land tax regime. 

In an industry used to periods of time of over 100 years without change the times certainly are "a-changing". However, such changes are welcome where they increase the speed of transactions and reduce paperwork and costs. This is a particularly complex area of law so for detailed advice please contact Jo Thirsk at Raworths.