Section 27 Notice Landlord and Tenant Act 1954: How tenants end a protected business tenancy

It is important to have a good understanding of how and when a lease comes to an end in order to effectively manage your assets and your financial future. When it comes to Part 2 of the Landlord and Tenant Act 1954, business tenants who hold security of tenure will be able to benefit from automatic statutory protection. So, their tenancy won’t necessarily end on the contracted end date but will be able to continue under the same terms. (gov.uk)

One of the principal statutory routes by which a tenant may end a protected business tenancy is by serving notice under Section 27 of the Landlord and Tenant Act 1954. Here, we’ll go into more detail on how the 1954 Section 27 operates, how the notice periods work, how it differs from other statutory notices, and what you can do as a commercial landlord when you receive one.  

What is Section 27 of the Landlord and Tenant Act 1954?

When a commercial tenant serves you with a Section 27 Notice under the Landlord and Tenant Act 1954, this is their formal written notice wanting to end a protected commercial tenancy. 

Due to the fact that protected commercial tenancies will benefit from security of tenure, this will mean that the lease will continue past its fixed end date automatically. So, if a tenant does not want to renew their lease, they’ll serve a Section 27 Notice; this brings their liability for rent and obligations to an end. To explore how security of tenure protects business occupiers, read our breakdown of commercial property rights for tenants.

How Does the 1954 Section 27 Differ from Section 25 and Section 26?

The Landlord and Tenant Act 1954 incorporates three statutory notices that can be used to manage lease terminations and renewals. So, let’s go into more detail as to how the 1954 Section 27 differs from Sections 25 and 26. 

A Section 26 request is used by tenants who want to stay and renew their lease, compared to a Section 27 notice that is strictly used for tenants who want to end their lease. The interaction between Sections 26 and 27 can be complex and professional advice should be sought where a Section 26 request has already been served.

What Are the 1954 Section 27 Notice Periods? 

The Section 27 Notice under the Landlord and Tenant Act 1954 operates on a shorter notice period, requiring at least 3 months’ written notice. Depending on when the tenant serves notice, two main statutory subsections apply:

1. Serving Notice Before Lease Expiry – Section 27(1)

If the commercial tenant is still within their fixed contractual term and has decided not to hold over past the expiry date, they’ll be able to serve a Section 27(1) notice. They will need to provide you with at least 3 months’ written notice. The notice, however, can’t take effect earlier than the contractual end date that has been stated in the lease. 

2. Serving Notice During “Holding Over” – Section 27(2)

However, if the contractual lease end date has in fact already passed and the tenancy is continuing under statutory holding over, the tenant will need to use Section 27(2), giving at least 3 months’ written notice. The tenant will be able to terminate on any specified date, as long as the minimum notice period is given. 

How Do Business Tenants Exit Commercial Leases? 

It’s important to be able to understand how tenants leave in real-world situations. Here are a few example scenarios: 

Scenario A: Tenant Vacates On or Before the Expiry Date

If a tenant vacates the property on or before the contractual expiry date of the commercial lease, their statutory protection will automatically end on that expiry date. Further to this, in many cases, no separate Section 27 notice may be required if the tenant vacates before or on the contractual expiry date. Usually, however, serving a Section 27(1) notice beforehand is standard legal practice, as this gives the landlord the confirmation they need that the tenant will not hold over. 

Scenario B: Tenant Stays Past Expiry (Holding Over)

If the tenant remains in the commercial property even one day past the contractual end of the lease without having served any notice, holding over kicks in. From that point onwards, the tenant will need to serve a formal 3-month Section 27(2) notice so that the tenancy can end legally. 

Scenario C: Tenant Leaves Abruptly Without Serving Notice

But what happens if the tenant decides to leave abruptly and not give you any notice or warning? If the tenant does not serve a valid 3-month Section 27 notice and without an executed legal deed of surrender, the tenancy will not legally end. 

This means that the tenant remains fully liable for ongoing rent, insurance contributions and service charges until one of the following things happens: 

1. A valid 3-month Section 27 notice period expires, or
2. The landlord accepts a formal surrender in writing.

For step-by-step guidance on issuing formal notices, see our article on commercial property notice to vacate.

Actionable Checklist for Landlords Receiving a Section 27 Notice under the Landlord and Tenant Act 1954

Here’s what you need to do to make sure that you cover all bases when a tenant serves a Section 27 Notice under the Landlord and Tenant Act 1954:

1. Verify validity: Firstly, you’ll need to make sure that the notice given to you is in writing and that it has been sent to the right landlord address, as well as with the right notice period. 
2. Check the expiry date: Secondly, you’ll need to confirm that the termination of the lease lies within the contractual period. 
3. Assess dilapidations: Next, plan a schedule of dilapidations inspections with a commercial surveyor. This allows for repair claims to be handled before handover. 
4. Apportion rent correctly: You’ll need to ensure that any rent that has been paid in advance and runs over the contractual period of time is refunded to the tenant. Under Section 27(3), rent is apportioned on a daily basis up to the termination date. 
5. Seek professional advice: You’ll also need to ensure that you consult a commercial property solicitor if you have already served a Section 25 notice. This will ensure that there are no conflicting statutory timelines. 

If you need any more advice on how to protect your commercial rental property, be sure to visit our advice centre. Also, if you’re looking for landlord insurance to protect your property from financial risk, get in touch with our team of specialists at CIA Landlords.