Statutory right to a new tenancy

A well drafted lease agreement will protect the interests of both parties to the agreement and should address all possible outcomes and eventualities that could arise during the lifetime of that agreement.What unrepresented landlords may not know however is that a poorly drafted agreement or one used by the landlord without recourse to legal advice can lead to all sorts of unintended and unwelcome consequences. Chief among these is the unintended consequence of granting the incoming tenant its statutory entitlement, unless relinquished, to a new tenancy.

On the face of it the landlord may consider this a harmless development, after all, does it not cement the landlord tenant relationship and copper fasten the rental income. Well yes, but this fails to take account of the financial liability the landlord will face should she seek to recover the premises under prescribed grounds at the end of the tenancy while the tenant is otherwise happy to remain in possession.

Compensation in lieu of a new tenancy

Where the tenant is entitled to a new tenancy, but the landlord rejects this on certain prescribed grounds then the tenant is entitled to ‘the pecuniary loss, damage or expense’ incurred as a direct result of it quitting the premises. The losses could include loss of profits while the business is not open, costs of sourcing an alternative premises, the increase in rental between the new premises and the existing premises, legal costs and stamp duty associated with the taking up of the new premises, costs associated with relocating to the new premises etc.

In contrast, compensation in lieu of a new tenancy would not be payable where the landlord first ensured that the incoming tenant relinquished its statutory right to a new tenancy before entering that tenancy and first received the benefit of independent legal advice. This process is known as ‘Contracting Out’

From a tenants viewpoint note that in ‘contracting out’ of the entitlement to a new tenancy it automatically loses its right to compensation for disturbance on quitting the tenancy and so the decision on whether or not to contract out is one that should be taken with care.

The article skims the surface of one key issue that landlords and tenants should take into account on letting their commercial premises and more particularly we expect to see the farming community develop an ever increasing awareness of this and other components of landlord and tenant law as it applies to long term agricultural leases.

This article is intended as a general guide only, you should seek professional legal advice in relation to your individual circumstances.