Section 25 Notice – Landlord’s notice ending a business tenancy

Section 25 notice explained:-

At the end of a lease of commercial premises, unless the lease has been contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954, the lease will not actually expire until it is terminated.

A section 25 is the mechanism by which the landlord terminates the lease (referring to section 25 of the 1954 Act.) The lease must be terminated whether or not the landlord wishes to renew it – so for these purposes “renewal” means granting a new lease to the same tenant.

A tenancy does not have to be terminated using the statutory procedure, if other means are appropriate. For example, any right to forfeiture for breach of covenants still applies; and if the landlord and tenant agree that the lease is to be surrendered, such an agreement can take effect.

However, although a tenant can usually give notice to quit or exercise a break clause, the protection of the 1954 Act makes it harder for the landlord to end the tenancy. Thus in the case of a tenancy protected by the Act, even the exercise by the landlord of a break clause in the tenancy will simply trigger the normal need to serve a s 25 notice, opposing the grant of the new tenancy and identifying the grounds of opposition.

What form should a section 25 notice take?

The form of the section 25 notice will depend on whether or not the landlord is prepared to renew the tenancy.

If the landlord is not opposed to the tenancy being renewed, the section 25 notice should be in Form 1. If, however, the landlord opposes the grant of a new tenancy, the section 25 notice should be in Form 2, unless one of the exceptions below applies.

  • The tenant may be entitled to purchase the freehold or an extended lease under the Leasehold Reform Act 1967. Form 7 should be used in this case.
  • There is to be a change of use or occupation of the property or part of it (and the notice contains a copy of a certificate to that effect); the form to be used will be Form 8, 9 or 10, in depending on the date on which the change of use or occupation is to happen, and on whether the tenant would be entitled to buy the freehold or a long lease.
  • There is to be a change of use or occupation which would be necessitated for certain specific statutory purposes.

These exceptions are, as can be seen, unusual situations.

What does the section 25 notice include?

A section 25 notice must state whether the landlord is opposed or unopposed to the granting of a new tenancy.

Form 1 – by which the landlord services notice that the tenancy is to be terminated but that he/she is not opposed to the grant of a new tenancy (i.e. renewing it), must include the proposals for the new tenancy as regards the property (whether it is the whole or part of the property currently leased), the rent, and the other terms.

Form 2 – by which the landlord terminates the lease and signifies opposition to its renewal, must state which of the permitted grounds for refusal he/she is relying on.

When must the section 25 notice be served?

A section 25 notice is ineffective unless it is given at least six months, and not more than 12 months, before the termination date specified in it. And the notice cannot name a termination date earlier than the one on which the lease would naturally have come to an end, or could have been brought to an end by notice to quit were it not for the provisions of the 1954 Act.

“Notice to quit”, in these circumstances, includes the exercise of a break clause.

(In certain limited circumstances the period before termination is calculated differently. This arises where the tenancy could, but for the operation of the 1954 Act, have been brought to an end by a notice to quit required to be given more than six months in advance.)

Under the 1954 Act, a notice can be served personally, by leaving it at the last known address, by regular post or recorded delivery; but if service is achieved by any other means then it will be equally effective.

What if the tenancy is a periodic one?

A periodic tenancy is one in which the duration of the tenancy is the period of time between rent payments. For example, if the rent is paid on a monthly basis, then the tenancy will be a monthly tenancy that is renewed for another month with each rent payment – unless either party gives notice to quit.

If a periodic tenancy falls under the definition of a business tenancy, as set out in the Landlord and Tenant Act 1954, then it will be protected by the Act’s security of tenure provisions. Therefore, if the landlord wishes to end the tenancy, they must serve a section 25 notice on the tenant, giving at least 6 months’ and no more than 12 months’ notice to the tenant.

If the tenant is not occupying the property in question for business purposes, then they will not benefit from the protection provided by the security of tenure provisions.

Negotiating a new lease

After being served with a section 25 notice proposing terms for a new tenancy, the tenant need take no legal steps if they also want the lease to be renewed. The next step is to negotiate the terms, and the period before termination ought to be set with ample time for the negotiation.

(If, however, the tenant wishes not to take a new lease of the property, a section 27 notice can be served, by which the tenant gives up the right to continue the lease under the Act. A section 27 notice can also be served by the tenant without the landlord having previously served a section 25 notice.)

The period while a tenant remains in occupation after the expiry of the lease, and while a new lease is being negotiated, is known as a “holding over” period. The terms of the current lease remain and the tenant and landlord must adhere to all obligations under this lease until the new lease starts.

Rent is paid at the current lease rate although an interim rent may be agreed between the parties or applied for by one of the parties; that rent can be backdated so as to apply from the beginning of the holding over period until the start of the new lease. Any arrear of interim rent would be payable when the new lease is executed.

Going to court

In order to protect their position either a landlord or a tenant can make an application to court. A tenant can apply for the grant of a new tenancy and a landlord can apply for the termination of a current tenancy or for the terms of a new tenancy to be determined.

If a section 25 notice has been served, either party can apply to the court up until the termination date named in the notice.

These deadlines can be extended by agreement between the parties by a simple letter. The tenancy will end if no party makes an application in time and no agreement for a new tenancy has been reached.

If application to the court has been made by the landlord, it can only be withdrawn with the tenant’s consent (which would be the case if the parties have reached agreement); if the tenant informs the court, however, that he/she does not want a new tenancy, the proceedings are dismissed.

When can a landlord “not” serve a section 25 notice?

If the tenant has already taken the initiative, and got the ball rolling with a view to renewing the lease, a different procedure applies. The tenant will have served a “section 26 notice” on the landlord, requesting a new tenancy at termination, and proposing terms for it; the landlord cannot then serve a section 25 notice, either to confirm or oppose a new tenancy. (If the landlord does not opposing renewing the tenancy, no further legal steps need be taken; if it is opposed, the landlord must notify the tenant of that, and include the grounds of opposition as mentioned previously.)