Business tenants in England and Wales enjoy a degree of protection under statute, and the rights conferred are potentially valuable to them, enhancing the market value of the lease. Conversely, the liabilities and restrictions placed upon the landlord may reduce the market value of his or her interest.
We shall now summarise the principal provisions of the statutes, and examine and demonstrate their impact on valuation of both landlords' and tenants' interests. There are two principal statutes concerned:
1) The Landlord and Tenant Act 1927: This gives to the business tenant the right to claim compensation for improvements, carried out with the landlord's proper consent, when the lease comes to an end. To gain such compensation, the improvements must:
- Have been done voluntarily (i.e. not as a condition of the lease), and
- Have a value to the landlord.
Once this right becomes attached to the lease, it potentially adds value to the lease. However, tenants often take a new lease, rather than leave and claim compensation for improvements. Therefore actual payments under this legislation are rare. North East & Yorkshire Commercial (NEY Commercial) can advise tenants on the possibility and likelihood of compensation for improvements made by the tenant to a landlord's building if the tenant was thinking of quitting at the end of the lease.
2) The Landlord and Tenant Act 1954, Part II: This Act gives to business tenants the rights to a new lease as follows:
- For a term not exceeding 15 years, (longer may be agreed between the parties) the 15 year term was suggested by The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.
- At a market rent, but excluding improvements done voluntarily by the tenant, always provided they were done under the last lease or a previous lease within the last 21 years.
- On such terms as the court considers reasonable, having regard to the old lease and the rent for the new lease. Rent reviews may be inserted into the new lease.
A tenant cannot, of course, take advantage of this and obtain the 1927 Act compensation. However, it would be possible to claim extensions and eventually quit and claim any residual value for improvements which increase the value of the reversion.
This Act was reviewed and simplified by The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 which came into force on 1st June 2004. Most of the changes, apart from allowing Courts to give a term of up to 15 years, involve a simplification of the notice procedures which had previously had rigid timetables.
If you would like to discuss an impending lease renewal or rent review or any of the above Acts, contact a member of our professional qualified team, who will be pleased to meet with you and advice without any initial obligation on a completely complimentary basis.