Section 25 notice:
At the end of a lease for a pub, the lease will not actually expire until it is terminated. (note unless contracted out of the Landlord and Tenant Act 1954)
Serving the notice is the method under which a landlord terminates the lease, the lease must be terminated whether or not the landlord wishes to renew it – therefore “renewal” means they are granting a new lease to the same tenant.
A tenancy can be terminated by other means, for example forfeiture for breach of covenants is still an option and the landlord and tenant could simply agree that the lease is to be surrendered.
The tenant can usually give notice to quit or exercise any break clause, but the protection of the 1954 Act makes it harder for the landlord. So with a tenancy protected by the Act, even a landlord exercising a break clause in the tenancy will trigger the need to serve a s 25 notice, opposing the grant of the new tenancy and making clear the grounds of opposition.
What form number should a section 25 notice use?
The form used depends on whether or not the landlord is prepared to renew the tenancy.
If the landlord is not opposed to renewal, the section 25 notice should be using Form 1. If the landlord opposes the grant of a new tenancy, the section 25 notice should be Form 2
What is included in a section 25 notice?
The notice must state whether the landlord is opposed or unopposed to the granting of a new tenancy.
Form 1 – the tenancy is to be terminated but the landlord is not opposed to the granting of a new tenancy (thereby renewing it), must include the proposals for the new tenancy as regards the property (whether it is the whole or part of the property currently leased), the rent, and the other associated terms.
Form 2 – the landlord terminates the lease and signifies their opposition to any renewal, must state which grounds they are relying on.
When must a notice be served?
The notice is ineffective unless it is given at least six months, (and not more than 12 months), before the termination date specified. The notice cannot use a termination date earlier than the one on which the lease would naturally have come to an end, or could have been brought to an end by notice to quit were it not for the provisions of the 1954 Act.
Notice to quit, includes the exercise of a break clause.
(In certain limited circumstances the period before termination is calculated differently. This arises where the tenancy could, but for the operation of the 1954 Act, have been brought to an end by a notice to quit required to be given more than six months in advance.)
Under the 1954 Act, a notice can be served personally, by leaving it at the last known address, by regular post or recorded delivery; but if service is achieved by any other means then it will be equally effective.
What if the tenancy is a periodic one?
A periodic tenancy is one in which the duration of the tenancy is the period of time between rent payments, which is often monthly for pub situations.
If a periodic tenancy falls under the definition as set out in the Landlord and Tenant Act 1954, then it will be protected. If the landlord wishes to end the tenancy they must serve a section 25 notice giving at least 6 months' and no more than 12 months' notice.
Note: If the tenant is not occupying the property for business purposes then they will not benefit from the protection.
Negotiating a new lease
The tenant need take no legal steps if they also want the lease to be renewed. The first step is to negotiate the terms, the period before termination ought to get ample time for any negotiation to be concluded.
If the tenant wishes not to take a new lease a section 27 notice can be served, by which the tenant gives up the right to continue. A section 27 notice can also be served by a tenant without the landlord having served a section 25 notice
The period while a tenant remains in occupation after the expiry of the lease is known as holding over. The terms of the current lease remain and both tenant and landlord must adhere to all obligations until the new lease begins.
Rent is paid at the current rate although sometimes an interim rent may be agreed; that rent can be backdated so it applies from the beginning of the holding over period.
Applying to court
In order to protect their position either party can make an application to court. A tenant can apply for the grant of a new tenancy and a landlord can apply for the termination (or for the terms of a new tenancy to be determined).
Either party can apply to the court up until the termination date named in the section 25 notice. Deadlines can be extended by agreement a simple letter between parties will suffice. The tenancy will end if no-one makes an application in time and no agreement for a new tenancy has been made.
If application to the court has been made by the landlord this can only be withdrawn with the tenant's consent (this would clearly be the case if the parties have reached agreement); if the tenant informs the court, that they do not want a new tenancy, the proceedings are dismissed.
When can a landlord "not" serve a section 25 notice?
A different procedure applies if the tenant takes the initiative they can serve a section 26 notice on their landlord, requesting a new tenancy at termination, and proposing terms. The landlord will be blocked from serving a section 25 notice. If the landlord does not oppose renewal no legal steps need be taken; if the landlord opposes they, the landlord must notify the tenant and state the grounds of opposition. Whilst a landlord may express grounds to oppose a renewal of the tenancy it does not follow that these would be valid or indeed deny the tenant the right to renew. A court would consider the grounds and evidence for renewal and denial of renewal and determine accordingly.