UK: Compensation for Refusal of a New Business Tenancy

Last Updated: 3 September 2004
Article by Stephanie Thomas and Guy Greenhous

Originally published June 2004

Pursuant to section 30(1) of the Landlord and Tenant Act 1954, a tenant is entitled to compensation where a landlord opposes the grant a new tenancy in a section 25 notice or a counter-notice to a tenant’s section 26 request on grounds which do not relate to a default on the part of a tenant.

Those grounds are as follows:

  • Section 30(1) (e) - where the tenancy was created through subletting part of the premises which the landlord would be able to let as a whole for a higher rent and the landlord intends to let or dispose of the whole of the premises on the termination of the tenancy
  • Section 30(1) (f) – where the landlord intends to redevelop the premises on the termination of the tenancy
  • Section 30 (1) (g) – where the landlord intends to occupy the premises on the termination of the tenancy

Prior to the reforms to the 1954 Act, a tenant was entitled to claim compensation for the disruption of having to leave premises if:

  • one or more of the above grounds were cited by a landlord even if the tenant did not apply to the Court for a new tenancy
  • if a tenant were to apply to the Court for a new tenancy and subsequently withdraw the application
  • if the Court ordered that the landlord be given possession of the premises.

The basis on which the amount of compensation payable is calculated has not been altered by the reforms and is determined by reference to the rateable value of the premises occupied by a tenant for the purposes of his business. The amount of compensation is either one times the rateable value, or twice the rateable value. The higher rate of compensation is payable if the tenant has occupied the premises or part thereof for 14 years immediately preceding the termination date or if the tenant takes up occupation of the premises by assignment and those premises have been occupied for that period by the tenant’s predecessor in title.

Changes to the Compensation Following the Reforms

Pursuant to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, which came into force on 1st June 2004, the 1954 Act has been amended to separate a tenant’s entitlement to compensation into 3 areas :-

  • Section 37(1)(A) where a Court is prevented from making an order granting a new tenancy by virtue of grounds (e), (f) or (g).
  • Section 37(1)(B) where a landlord succeeds in an application for a termination order on grounds (e), (f) or (g)
  • Section 37(1)(C) where a landlord opposes renewal on grounds (e), (f) or (g) in a section 25 notice or a counter-notice to a section 26 request served by a tenant and the tenant either makes no application or does apply to the Court and later withdraws his application.

The degree of compensation will be determined according to the extent of the premises occupied by the tenant at the date of the service of the section 25 notice or the counter-notice to the section 26 request.

There will be a separate calculation of compensation for each part of the building occupied for a different length of time.

Where the reversion is divided and there are separate landlords, compensation will be determined separately with each landlord being liable for compensation in respect of the parts that they each own.

The provisions concerning opposition under grounds (e), (f) or (g) of section 30(1) of the 1954 Act reflect the position on ownership and control of businesses (see Property Dispute Briefing Number 27). In summary, if the same person has a controlling interest in a number of companies they will be deemed members of a group and a landlord will be able to oppose renewal if one of those companies wishes to occupy the premises. Alternatively, a landlord who is an individual will be able to oppose renewal to enable a company in which he has a controlling interest to occupy the premises. Also, a corporate landlord will be able to oppose renewal to enable an individual with a controlling interest to occupy. In cases where a controlling interest is relied upon, it must have been acquired by the landlord within the last 5 years of a tenancy.

Pursuant to section 55 of the 1954 Act, the Court could order a landlord to pay compensation where the Court refused to grant a new tenancy and where a tenant could prove that this was due to misrepresentation or concealment of material facts by the landlord. The 2003 Order goes beyond this and provides for a compensation payment to be made to a tenant who leaves premises after electing not to make an application for a new tenancy or after withdrawing such an application due to misrepresentation or concealment of material facts by the landlord.

© RadcliffesLeBrasseur

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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