Business Tenancies

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Business tenants are protected under the Landlord and Tenant Act 1954 (LTA 1954). Like the statutory codes applying to residential tenancies, there are two main effects to the statute; security of tenure and rent control.

Business tenants have the general right to have their tenancies renewed. A business trading from a particular location will come to be known in the locality over time, building up goodwill and reputation. This goodwill together with the high costs that can be associated with fitting out commercial properties needed protection. A business tenant will also be entitled to compensation for improvements.

Rent control is provided under the LTA 1954 to prevent landlords forcing rent rises on tenants significantly over the market rate. Tenancies under the LTA 1954 will be continued automatically and the landlord will need to follow a procedure specified in the Act before the tenancy can be brought to an end.

These rights are similar to those available to tenants occupying under residential tenancies, yet there are important differences between the codes. The codes are mutually exclusive. They provide different security of tenure and procedures for ending the tenancy. A tenant holding a business tenancy under the LTA 1954 will generally have greater security than the tenant holding an assured shorthold tenancy under the Housing Act 1988.

A person or entity will be a business tenant if:

  • possession of the premises is held under a tenancy
  • the tenant occupies at least part of the premises, and
  • the premises or that part of the premises are occupied for the purposes of carrying on a business.

Mixed use

The LTA 1954 provides that a tenancy will come under the protection of the Act if the premises are occupied for the purposes of a business carried on by the tenant 'or for those and other purposes'. Where those 'other purposes' are residential, then there will be an inevitable conflict between the two statutes. The landlord may want to argue that the letting falls under the residential statutes whereas the tenant, in order to gain greater security of tenure or simply to complicate matters for the landlord, may claim protection under a business tenancy.

In law, the two sets of statutes are mutually exclusive. If a tenancy falls within scope of the LTA 1954, then it will be excluded from being an assured or assured shorthold tenancy. Where there is mixed residential and business use, it will be important to determine which statute will apply.

Under the LTA 1954, the business use of a premises must be a significant purpose of the tenant's occupation of the premises. Considering such cases is not easy, but it will be a question of fact and degree. At one end of the scale is the tenant who is perhaps employed, merely bringing work home in the evenings. At the other end is the tenant who runs his business entirely from home. There are plenty of cases of partial business use that fall between the two above examples.

It is generally accepted that a residential tenant may wish to bring home papers or other work to complete after work, and this would not normally lead to an assumption of business use. However, when considering the borderline cases, it is often useful to look at the case law on the subject.

Solutions

There are no simple solutions for the landlord attempting to grant a tenancy in this situation. The laws for residential and business tenancies have been formulated as independent sets of rules that were never designed to be used together. The rules are mutually exclusive so that a business tenancy is excluded category under the Housing Act 1988. Equally, residential tenancies are excluded under the Landlord and Tenant Act 1954 (the primary framework under which business tenancies operate).

It is likely that this boundary between residential and business tenancies will become increasingly relevant as more and more people work from home. Indeed, many rental properties, particularly in urban areas are specifically marketed as 'mixed use'. In these cases, it is common to use a business tenancy which excludes the Landlord and Tenant Act 1954. This is permitted by the Act and the procedure set out in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 must be complied with in order for such an agreement to be valid.

More recently the Small Business, Enterprise and Employment Act 2015 establishes a new concept of a 'home business tenancy' allowing landlords to permit residential tenants to run a home business without the tenancy falling within the protection of the LTA 1954 so long as tenants are not permitted to run any other kind of business from home. The landlord's consent to a home business must be obtained either through the terms of the tenancy agreement or by the landlord's subsequent agreement.

Relevant Factsheet

Factsheet 33 - Business, Agricultural and Mixed Use Tenancies