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Letting your barn out for commercial purposes

Letting your barn out for commercial purposes

A lease or a licence?

If you let your barn using what you believe to be a simple licence agreement, then you should be aware that you may have inadvertently granted the occupier a lease. This is because if you allow someone to have exclusive occupation of a building (or part of a building) then legally you are giving them a lease, even if you call it a licence. 

This could be a problem because a tenant of business premises has security of tenure under the terms of the Landlord and Tenant Act 1954. This means that they have a right to renew their lease at the end of the lease term, at the open market rent but otherwise substantially on the same terms as before. The landlord can only oppose renewal on certain specified grounds which, if the tenant wants to stay and disputes whether the ground has been made out, can be time-consuming and costly to prove. If you want to relet to a different tenant at the end of the lease period but the existing tenant wants to stay, or if you simply want to get vacant possession at the end of the lease period, this means that you cannot automatically do so. A tenant’s right to renew their lease can be excluded before the lease is granted (see below) but it will be too late to do so if the tenant has already acquired rights of security of tenure.

The same issues can arise if you let someone into exclusive occupation of business premises and they pay rent by reference to a set period, e.g. monthly. In this case they will be monthly periodic tenants. Periodic tenants have security of tenure under the 1954 Act, so the landlord will not automatically have a right to possession of the property by giving a month’s notice to terminate. Instead, the landlord will have to serve a statutory notice, giving at least six months’ notice to bring the existing tenancy to an end. However, the tenant then has the right to a new lease as referred to above, and again the landlord will only be entitled to oppose renewal on one of the specified grounds.

Unwritten tenancies

If you let someone into occupation of premises without a written tenancy agreement, that presents the problem of ascertaining what the other terms of the tenancy are. Unless there is clear evidence to the contrary, no restrictions on dealing with the tenancy are implied into a verbal tenancy agreement of business premises, so the occupier can sublet without your consent. There are also no restrictions on the use to which the premises can be put, provided that the tenant does not use them for an illegal purpose, and no restrictions on alterations apart from the fact that the tenant must not damage the premises. In addition, unless the parties agree to the contrary, there is no obligation on a tenant of business premises to carry out repairs or to contribute towards the landlord’s costs of repairs. Verbal tenancy agreements should therefore be avoided.

Excluding the tenant’s statutory right to renew a lease

If you want to guarantee that the tenant must leave at the end of the lease term, then the tenant’s statutory right to renew can be excluded, provided that you are using a written tenancy agreement for a fixed period. A notice needs to be served on the tenant in a specific form (which a solicitor can prepare and serve for you) and the tenant will need to swear a prescribed form of declaration (and do so before a solicitor if the lease is completed less than 14 days after the written notice has been given), before the lease is completed. Provided the correct procedures are followed, the lease will then come to an end on the date specified in the lease. If the tenant wishes to remain it will then need to negotiate new terms on an “open market” basis, rather than having a statutory right to ask for a new lease. 

Terms of the lease

The lease should set out detailed provisions regarding the obligations of both parties, any rights granted to the tenant and any rights reserved by the landlord. A surveyor will be able to advise you as to the likely terms that can be agreed in the open market at the relevant time. Briefly these will include the following matters: the length of the lease, the rent payable (including any date on which the rent is to be reviewed), the extent of each parties’ repairing obligations, whether a service charge is to be payable, whether the tenant can deal with the lease in any way, whether the tenant will be permitted to carry out any alterations, the permitted use, and whether the tenant is to pay a deposit as security for its obligations under the lease.

For further information please contact Victoria Sandberg. Victoria is a Commercial Property solicitor at Longmores Solicitors LLP with a particular interest in rural land.

 

Please note the contents of this note are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances. 

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