WHEN leasing commercial premises from a landlord, tenants have rights under Part 2 of the Landlord and Tenant Act 1954. They are protected in three ways:

* They are allowed to remain in the premises even after expiry of the original term until they wish to vacate, or until the landlord can show one of the statutory grounds for termination;

l Tenants can obtain a new lease on virtually the same terms, though subject to market rents and court resolution (where required) of any disputed terms;

l If a statutory ground for termination does apply, the tenant is entitled to statutory compensation.

Except where the tenant has breached the tenancy, there are only four such statutory grounds with which the landlord can terminate the lease:

l They intend to use the premises for their business;

l They intend to demolish or reconstruct the premises and the work requires the landlord to regain possession;

l They offer to provide alternative premises; l The tenancy is only in respect of part of the premises and the landlord intends to let the premises as a whole.

To protect themselves and avoid compensation or court fees, landlords are now attempting to draft leases in such a way that the lease falls outside the Act.

For a landlord to exempt a lease from the Act, thereby removing a tenant's rights, the correct procedure must be followed before the lease is executed.

The landlord must serve a warning notice advising tenants of the rights he intends the tenant to surrender on commencement of the lease and a recommendation to seek advice, and the tenant must make a statutory declaration on the prescribed form to that effect. Should this procedure not be followed, the lease will be subject to the protections contained in the Act.

However, even where these steps have been taken, certain hurdles will still have to be cleared when drafting the lease.

Leases must be for a fixed period and not subject to an extension. Leases for, say, seven years with a break option after five will be outside the Act.

However, a lease for five years which can be extended or renewed for a further two years, will fall within the Act.

Tenancies at will and licences will not be outside the Act and therefore landlords must be certain that they are granting a lease.

* Zoe Rayment is a member of the commercial property team at Blackett Hart & Pratt in Newcastle. For more information, contact her on 0191-221 0898.

Published: 28/03/2006