The Regulatory Reform (Business Tenancies) (England) Order 2003
The order covers several situations. We discuss the three most important to "DIY" landlords. The Order contains a number of other useful provisions, such as: making the rules on interim rent (rent payable pending renewal of the tenancy) fairer; clarifying how a tenant may bring a business tenancy to an end; and improving the arrangements for the parties to obtain information from one another before embarking on renewal or termination procedures.
Situation 1 - new requirements before lease is signed for valid exclusion of the tenant's right to a new tenancy at the expiry of that lease.
Agreed termination provisions - new rules
This order becomes affective on 1st June 2004. Prior to this date, a joint application to court by landlord and tenant was necessary in order to validate an agreement for the tenant to waive his right to security of tenure. The new order is aimed at speeding up the process and reducing the number of cases which go to court. The old application to court has been replaced by a simpler 'health warning' notice, written in plain English, served on the tenant, and explaining the loss of rights and the importance of getting professional advice.
The tenant must sign a declaration that he has read the "health warning" and accepted its consequences. The landlord must give the tenant at least 14 days' notice otherwise the tenant must visit an independent solicitor to make a special "statutory declaration".
The story so far
The 1954 Landlord and Tenant Act gives rights of security of tenure to tenants. For many reasons, it does not always suit the landlord to let his property subject to those rights. He needs to be sure he will have possession at the end of the term. Until now, the only way to achieve that has been for the two sides jointly to apply to court (usually through solicitors). This had become a mere formality, so considerable expense has been incurred unnecessarily. More importantly, the process was tedious and time consuming, adding several weeks to the lease process without doing anything to safeguard the rights of the tenant.
Under the old rules, the parties could agree to enter into a form of lease (also agreed in advance) conditional upon obtaining the order of the court and in anticipation that the consent of the court would be forthcoming in due course. That enabled the tenant to take possession early, but only at considerable additional legal cost.
The new rules
Now, an application to court is no longer necessary. Instead, the landlord may serve a simpler so-called "health warning" notice at least 14 days prior to completion of the transaction. This warns the tenant of the loss of the right to security of tenure if he proceeds with the deal. The tenant then has to sign a declaration that he has read the "health warning" and accepted its consequences. If the 14 day deadline is missed, and the tenant agrees, the health warning may still be valid if the tenant signs a declaration in a prescribed form.
The old "agreement to enter into a lease" formula is not relevant under the new rules, The "health warning" notice has to be given.
Where there is an existing lease and the tenant agrees to surrender early, the procedure is the same - 14 day health warning; less than 14 days ok if tenant signs statutory declaration.
Summary of necessary action by landlord, for valid agreement by tenant to waive (give up) security of tenure
Landlord serves notice on the tenant in the prescribed form or substantially in that form not less than 14 days before the tenant enters into the tenancy to which it applies, or (if earlier) becomes contractually bound to do so. Send him a copy of the form of declaration for him to sign too. Tell tenant the lease cannot commence until he sends to you the signed declaration (the notice does not say this);
Landlord receives response from tenant in form of a signed declaration (not a sworn statutory declaration) in the prescribed form;
If 14 day time period already expired, landlord can still come to agreement with tenant for tenant to swear statutory declaration in prescribed form. This can be done right down to the day the lease is signed, but not afterwards;
A reference to the notice and the declaration, must be must be "contained in or endorsed on" the lease. All Net Lawman leases now contain a suitable clause;
For good measure, we advise also that a copy of the notice and the declaration are attached to the lease.
Situation 2 - new requirements for agreement for tenant to surrender existing lease before its expiry.
The landlord and the tenant may negotiate whatever deal they wish. This will be incorporated in a legal document in any form. For that agreement to be valid, they must proceed as follows: (essentially the same procedure as for grant of new lease)
Landlord serves notice on the tenant in the prescribed form or substantially in that form not less than 14 days before the tenant enters into the agreement under section 38 (A) (2) of te act, or (if earlier) becomes contractually bound to do so;
Landlord receives response from tenant in form of a signed declaration (not a sworn statutory declaration) in the prescribed form;
If 14 day time period already expired, landlord can still come to agreement with tenant for tenant to swear statutory declaration in prescribed form. This can be done right down to the day the lease is signed, but not afterwards;
A reference to the notice and the declaration, must be must be "contained in or endorsed on" the lease. All Net Lawman leases now contain a suitable clause;
For good measure, we advise also that a copy of the notice and the declaration are attached to the lease.
Situation 3 - new requirements for agreement to renewal of an existing lease (not drawn under the new provisions above).
Applications for new tenancies - the old rules
Under the Landlord and Tenant Act 1954, only the tenant could apply to the court for a new lease. But the tenant and his solicitors often dragged their heels with a view to negotiating a better deal with the landlord, who would still be receiving only the old rent. Negotiations might become protracted.
The new rules
Now, either party can serve a notice to renew. if the landlord wants the tenant to renew, he can set out in his Section 25 notice the terms of the proposed new lease including not only the new rent, but any changes he proposes in other terms, even to the extent of altering the area let or the obligations to repair. The effect is that each party is aware of the position of the other at an early stage so that time taken to negotiate the terms of the new tenancy is reduced.
Summary of necessary action by landlord or tenant, at time of expiry - renewal of the lease Section 24 of the Act has been amended so that;
Either landlord or tenant can apply to the court for the terms of a new lease to be fixed.
Neither may apply to court once the other of them has applied;
A section 25 (6) notice by landlord must now;
state whether landlord is opposed to grant of new tenancy; (as before);
If he is opposed, state one or more of grounds set out in 30 (1) of the act; (as before);
If landlord does not oppose grant of new tenancy, notice must set out his proposals for;
the property to be comprised in new tenancy (all or part of property comprised in old tenancy);
he rent under new tenancy;
Other terms of the new tenancy.
There are detailed provisions as to the Landlord's and tenant's obligations in respect of the procedure which are little changed from those applying presently. Most landlords will instruct solicitor to deal with them. Note in particular that the court has no power to hear an application made after the end of the date specified in the landlord's notice or the date immediately before the date for the commencement of a new lease specified in the tenant's request for a new tenancy.
Net Lawman can supply a pack containing all the documents you require as follows:
Prescribed form of notice to be served as the "14 day health warning" for new lease;
Prescribed form of declaration for new lease;
Statutory declaration if less than 14 days notice is given;
Paragraph to be inserted in lease (already contained in all Net Lawman leases);
Prescribed form of notice to be served as the "14 day health warning" for surrender of lease;
Prescribed form of declaration for surrender of lease;
Statutory declaration for surrender if less than 14 days notice is given.
