UK: The New Definitions of "Landlord" and "Tenant" Following the Reforms to the Landlord and Tenant Act 1954

The reforms to the Landlord and Tenant Act 1954 coming into force on 1 June 2004, pursuant to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 will widen the meaning of "landlord" and "tenant" to include individuals or companies connected with those parties.

Section 23 of the Landlord and Tenant Act 1954 provides that security of tenure applies to any tenancy where the property comprised in that tenancy is, or includes, premises occupied by the tenant for the purposes of a business carried on by him.

However, over the years since the 1954 Act has been in force, this provision has resulted in some tenants losing their security of tenure. For example, if a tenant who was an individual operating as a sole trader subsequently decided to incorporate his business and continued to trade from the subject premises without obtaining licence to assign from his landlord, he would no longer be in occupation within the meaning of Section 23 and could have lost his right to renew his lease pursuant to the 1954 Act, because the new company, rather than him personally, could be deemed to be in occupation.

Similarly, a corporate tenant could have lost its security of tenure if the party with a controlling interest in the business were to trade from the premises in its place.

The amendment to Section 23 provides that occupation or the carrying on of a business:

• by a company in which the tenant has a controlling interest; or
• where the tenant is a company, by a person with a controlling interest in the company, shall be treated as equivalent to the occupation or carrying on of a business by the tenant.

These amendments will remove a trap for unwary tenants and reflect the way in which business practices have evolved.

Ground 30(1)(g) of the 1954 Act enables a tenant to claim compensation from his landlord on the termination of his current tenancy where the landlord intends to occupy the holding.

Prior to the reforms, the landlord’s opposition to the grant of a new tenancy was limited to circumstances where the landlord (or a company he controlled) intended to occupy the premises for the purposes, or partly for the purposes, of a business or as his residence.

Pursuant to the reforms, if a landlord is a company, "landlord" will be deemed to include a person with a controlling interest in that company, unless the controlling interest was acquired within 5 years of the termination of the tenancy. Therefore, a corporate landlord will be able to terminate a tenancy to allow a person with a controlling interest in that company to occupy the premises provided the controlling interest was acquired within the last 5 years of the tenancy.

Further, "landlord" is deemed to include a company in which the landlord has a controlling interest. Therefore, a landlord who is an individual will be able to terminate a tenancy to enable a company in which he has a controlling interest to occupy the premises.

The reforms extend the effect of ground (g) to circumstances in which not only is the business to be carried on by a company controlled by the landlord, but beyond that, to a situation where an individual behind a corporate landlord is to carry on business from the premises.

If a tenant is a member of a group of companies, under the old "rules", only occupation by another company in the group for business purposes was deemed equivalent to the carrying on of business by the tenant company.

However, pursuant to the reforms, if the same person has a controlling interest in two companies, they will be deemed members of the same group. Accordingly, a second company under the control of an individual who also controls the original tenant company will enjoy security of tenure of the premises pursuant to the 1954 Act. Companies associated in this way, i.e. linked by an individual and not a holding company, will have security of tenure without the need for one company to be the subsidiary of the other or both to be subsidiaries of a third company.

The amendment to Section 46 of the Act operates to re-define "controlling interest" as follows:

"A person has a controlling interest in a company if, had he been a company, the other company would have been its subsidiary."

The overall effect of the changes to the definitions of "landlord" and "tenant" and "controlling interest" will be to broaden the protection of the 1954 Act and create greater flexibility in both parties’ approach to their status.

© RadcliffesLeBrasseur

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