Commercial Tenant's compensation for loss of leasehold premises

Other the last few months, I have produced a series of articles that have provided a whistle stop tour through the statutory grounds upon which a commercial Landlord may seek to oppose the grant of a new commercial lease to a Tenant.

As those of you who have read the previous articles will know - if you haven’t read them, have a look, they’re not the worst I’ve written - the statutory grounds are split into “fault grounds” and “non fault grounds”.   Where a Landlord is able to establish one of the fault grounds, a Tenant may find themselves out on their ear without even a “mind how you go”. However, Tenants who find themselves having lost their business premises due to a Landlord being able to satisfy the Court as to the application of one of the non-fault grounds are, by virtue of Section 37 Landlord & Tenant Act 1954, entitled to statutory compensation.

Statutory compensation is available where

  • a Landlord is able to successfully oppose a Tenant’s Court Application for the grant of a new tenancy on the basis of one of the non-fault grounds; or
  • a Landlord serves a section 25 notice or a counter-notice to a Tenant’s section 26 notice relying on grounds E, F, and/or G, and the Tenant does not apply to the Court for a new Lease, or does so but them withdraws the claim for a new Lease,

Note that compensation is not due if the Landlord successfully opposes the grant of a new Tenant on the basis of a non fault ground and a fault ground.

The compensation due to the Tenant, which is payable when the Tenant provides vacant possession of the Property to the Landlord, is a sum equal to 1x the rateable value of the Property as at the date of service of the Landlord’s Section 25 notice or, if a Tenant serves a Section 26 notice, the date that the Landlord’s counter-notice opposing a new lease is served.

The statutory compensation increases to a sum equal to 2x the rateable value of the Property if the Tenant has been in occupation of the Property for a continuous period of 14 years or more preceding the termination of the existing tenancy. The 14 year period is calculated back from the date in the Landlord’s Section 25 notice, or the day before the date in the Tenant’s Section 26 notice.

Section 37(3) Landlord & Tenant Act 1954 provides that if the Tenant is the “successor to the business” which occupied the Property previously - which is generally thought to mean that the Tenant acquired the goodwill of the business of the former occupier - then the Tenant is able to rely on the occupation by the previous occupier to establish 14+ years occupation and the pursue the increased level of statutory compensation,

It is not uncommon to see provisions in commercial leases which attempt to exclude the Tenant’s right to compensation under section 37 Landlord & Tenant Act 1954. However, such clauses are void unless the Tenant has been in occupation for less than 5 years, or agreement is made after the Tenant’s right to compensation has arisen.

Compensation may also be payable to a Tenant where the Tenant loses its business premises a result of the Landlord wilfully concealing information or misrepresenting the facts surrounding its opposition to the grant of a new lease. I will not go into that any further here, but am happy to discuss it with anyone who has a burning desire to learn more!

And there we have it, our rip roaring journey through Section 30 and Section 37 Landlord & Tenant Act 1954 is over. Hopefully they have been interesting, informative and not too sleep inducing. If you have any queries arising from the articles, wish to propose a subject for a future article or would like to discuss any contentious property related matter, please feel free to contact me on christopher.drinkall@rollits.com, Telephone 01482 337367

Follow me on Twitter @drinkall_chris

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Posted on: 11/05/2018

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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