A section 25 notice is named after the section in the Landlord & Tenant Act 1954 (the 'LTA') that sets out the information (in a notice) that a landlord needs to give the tenant in order to end a business tenancy.
Using a s25 notice is necessary whether the landlord opposes a new tenancy (i.e. they want the tenant to leave), or whether they are happy to grant a new lease and wishes to suggest changes to previous terms.
The LTA 1954 applies to commercial tenancies in England and Wales, but not in Scotland.
The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 changed the rights of tenants giving what is known as security of tenure. We advise that you read that longer article, but in summary, security of tenure gives the tenant the right to be offered a new tenancy at the end of an old one.
There are situations where a tenant does not have security of tenure. The most common is where the landlord and the tenant have agreed before the start of the lease to opt out of Sections 24 to 28 of the LTA 1954 and have followed the correct procedure. If the parties have opted out, then a Section 25 notice is not suitable and the arrangements for ending and renewing the tenancy should be set out in the lease agreement. After opt-out, the lease agreement is on a purely contractual footing, with no statutory protection for the business tenant.
However, if the parties have not contracted out beforehand, either the landlord or the tenant can suggest a new tenancy. The landlord does so using one of the two variations of Section 25 notice, and the tenant does so using a Section 26 notice.
Either party can find out information about the lease before deciding whether to renew it or not by serving a section 40 notice.
If the landlord opposes the renewal, the notice must be served between 6 and 12 months before the landlord wants the present tenancy to end. The date he specifies for the end of the tenancy can be the last date of the lease or any date after that.
A section 25 notice cannot be served on the tenant if the tenant has already served a section 26 notice.
Once an s25 notice has been served, it can only be withdrawn when the landlord has transferred his ownership to a new landlord who wishes the tenancy to continue on the old basis, or new and different terms.
If the tenant does not respond to the notice
Where the tenant does not respond to the notice, the tenancy will either continue on the proposed new terms or where the landlord has served an opposing notice, the tenancy will end on the date specified in the landlord's notice.
Professionals would usually advise the tenant to respond. If he does respond, the tenant may find themselves in a more favourable position, and able to negotiate better terms without having to go to court.
Where the tenant responds and contests an opposing notice requiring renewal, or where the tenant has applied to the court for renewal (see the next section), the landlord will need to apply to the court and convince the court that his grounds for ending the lease can be justified under the LTA 1954. It is possible to settle before the case reaches court.
The court will not order a new tenancy where the landlord successfully argues that one or more of the specific reasons apply. If the landlord is unsuccessful in opposing renewal, the court will order the grant of a new tenancy and settle its terms.
The tenant can pre-empt the landlord's section 25 notice (the landlord's equivalent of a s26), request a new tenancy and propose terms for renewal. He does so by sending a section 26 notice.
The tenant must send the form between 6 and 12 months before he wants the new tenancy to start and the new start date must be after the initial lease has expired.
However, if the landlord has already sent a s25 notice, then the tenant cannot propose a new lease using a s26 notice, and must instead reply to the landlord on the landlord's form.
Where both parties are willing to renew the lease on the tenant's proposed terms the new tenancy can begin on the date specified in the s25 notice. It may be the case that the parties negotiate different terms for a new lease.
Pursuant to the reforms, either a landlord or a tenant may apply to the court for the determination of an interim rent if either type of notice has been served. Only one application may be made - so it is first come, first served.
In line with section 24B of the 1954 Act, if a section 25 notice has been served, interim rent will be payable from the earliest date that could have been specified in the notice as the date of termination.
Sometimes the tenant may be entitled to acquire the freehold or an extended lease. If so, then form 7 in schedule 2 to the Landlord and Tenant Act 1954, Part 2 (Notices) Regulations 2004 must be used instead of a s26 form.