In my last article, I wrote about a landlord's notice (Section 25) to terminate a business tenancy. Under the Landlord and Tenant Act 1954, a business tenancy will continue until it is brought to an end by serving of notice. This should be served not less than six months or more than 12 months before the end of the term. However, if a notice is not served in time, the tenancy will continue on the same terms and conditions, including the rent, until the notice is served this is commonly known as "holding over", al-though strictly it is a "continuation tenancy" under the terms of the 1954 Act. To take an example, when a tenancy expires on 31 December, the Section 25 notice should be served before 30 June for the tenancy to be terminated on 1 January. If the notice is not served until 31 July, then the tenancy will not be terminated until 1 February. In a situation where a property is over rented, a landlord may be perfectly happy for the tenancy to continue, providing the tenant is paying the rent. Obviously, this is in the landlord's interest because a higher or even the same rent may not be achievable on renewal of the lease. The landlord would therefore allow the tenant to "hold over" on the same terms as the original agreement. Section 26 This is where the tenant can be proactive and bring the agreement to an end by serving the landlord with a Section 26 notice, which is, in effect, a tenant's request for a new tenancy. Just like a Section 25 notice, this can only be served not less than six months or more than 12 months before the end of the tenancy. In my opinion, this places the tenant in the driving seat, as the landlord now has to respond within two months of receiving the notice indicating his intentions. Should a landlord fail to respond within the time limit, then the landlord will not be able to oppose the tenant's application for a new tenancy. The tenant must however still protect himself by making the application to court within two to four months of serving the original notice. In recent years, I've worked mainly for tenants and, in my opinion, a Section 26 notice places tenants in a better negotiating position as it imposes time limits on the landlord as laid down under the Act. As there have been so many changes in pub ownership in recent years, it is important that the tenant serves the notice on the correct landlord. A notice addressed to the wrong landlord could be invalid, although, on the basis of recent case law, the court will usually treat the notice as valid if the landlord has not been misled by the use of the wrong name. Timing Tenants should remember that the court proceedings that the tenant has to issue to protect his security may continue for several months and may not be finalised before the expiry of the notice. In virtually all cases, the terms of the new lease are agreed by negotiation between surveyors. However, if the case has to be decided by the court, then the new tenancy does not begin until three months after the date of the court's decision. The landlord has no right to back date the start of the new lease but he can apply for an interim rent during the period from the expiry of the Section 25 or 26 notice (or, if later, the expiry date of the lease). In a rising market, the rent is likely to be between 70% and 90% of the new lease rent. Financial advantage There is also another major advantage that can be gained from a tenant serving a Section 26 notice. For example, where a tenancy is coming to an end on 31 December and a landlord has failed to serve a Section 25 notice before 30 June, a tenant can serve a Section 26 notice at this time. The tenant should give the landlord 12 months notice of his intention to apply to the courts for a new tenancy. Once a Section 26 notice has been served, a landlord cannot then serve a Section 25 notice. Therefore, a tenancy coming to an end on 31 December will continue, thereby deferring any rent increase for another six months, which could be a significant financial advantage when rental values have been rising rapidly. Once a tenancy is coming to an end and no notice has been served, it can then become a "cat and mouse" game as to who will serve a notice first. When rental values have fallen and the passing rent is in excess of open market values, a landlord may allow his tenant to hold over. In this case, the tenant should then serve his Section 26 notice and give six months notice to terminate at the end of the tenancy. Alternatively, in a market where values have risen, if a landlord has not served a Section 25 notice within the six to 12-month period, it then becomes a lottery as to who should serve the notice first.
