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Pharmacy Business: Managing the End of a Lease

30 April 2014

Managing the end of a lease is fundamentally important to both landlord and tenant of a pharmacy property.

A number of questions apply – including as to the rights of the tenant to remain in the property and, if they do, the ability of the landlord to obtain possession.

In this article we answer a number of the common questions arising out of a typical case study.

Case Study

Slough Chemists are a group of pharmacists with property in Slough.

They own the freehold of their property which had more space than they needed for their pharmacy, so on 1 January 2004 they granted a lease of part of the property to a convenience store called 24/7, for a term of 10 years. The term expires on 31 December 2014.

Since 2004, 24/7 have been using the demise for the purposes of the convenience store.

There is no clause within the lease stating that it is contracted out of the Landlord & Tenant Act 1954 (“the Act”).

Does 24/7 have a right to remain in the property after the term expiry?

Unless either landlord or tenant has served notice under Part II of the Act, the tenant will have a right to remain in the property, if it wants to, under section 24 of the Act.

This is because the lease concerns a tenancy relation to property occupied by a tenant for the purposes of a business. The security of tenure provisions of the Act therefore apply.

How could Slough Chemists have prevented the Act from applying?

There is a way of contracting out of the material provisions of the Act. However, it is now too late to do so.

The notice/declaration procedure set out in the Act is the only way of validly contracting out of these provisions.

If the procedure is not followed to the letter prior to the grant of the lease, the security of tenure provisions of the Act will apply.

Slough Chemists want to renew the lease with 24/7 after the current lease expires. What should they do? 

First check that 24/7 is the tenant in occupation – Slough Chemists may consider serving a notice under section 40 of the Act to determine whether any sub-tenancies have been granted.

Once Slough Chemists are satisfied that 24/7 is the tenant, they should serve a section 25 notice under the Act not opposing the grant of a new tenancy (ensuring they use and correctly complete the prescribed form of notice).

However, if market rents are falling then Slough Chemists may want to wait and see if 24/7 serves its own trigger notice under section 26.

If Slough Chemists serves a section 25 notice stating that they are not opposed to the grant of a new lease, what is the earliest date for termination of the current tenancy that can be specified in the notice?

The earliest termination date that can be specified in the notice is 31 December 2014 (being the contractual expiry date of the existing lease).

When should the notice be served to terminate the tenancy on that date? 

Section 25 notices must give at least 6 but no more than 12 months notice.

Therefore, the section 25 notice must be deemed to be served on or before 30 June 2014. Service of notices is a notoriously complicated and contentious sphere – therefore great care must be taken.

Once a valid section 25 notice has been served, 24/7 cannot then serve a section 26 request.

Slough Chemists served a section 25 notice not opposing the grant of a new tenancy specifying a termination date of 1 January 2015. However, a new lease is not going to be completed before that date and 24/7 is concerned it may lose its rights.

What should it do?

24/7 can either issue Court proceedings asking the Court to determine any of the terms that the parties have not managed to agree for the new lease or it can extend the statutory protection period by written agreement.

That agreement must be made prior to the end of the statutory protection period.

If 24/7 does neither and the new lease does not complete before 1 January 2015 then 24/7 will lose the protection of the Act.

What if 24/7 serves a section 26 request first and Slough Chemists wants to refuse a tenancy on the basis it needs all of the property for its own business, as the pharmacy needs room to expand?

Slough Chemists should serve a counter notice on 24/7 within 2 months of being served with the section 26 request.

It should then apply to Court setting out its reasons for opposing the new lease, obtain the evidence needed to prove its grounds and consider the compensation payable to 24/7.

There are only certain reasons which would allow Slough Chemists to be able to refuse to grant a new lease.

They include the landlord requiring the property for its own business although Sough Chemists must prove this. 

The end of the tenancy is though complicated and professional advice should be sought.

This article was written by Tim Jenkins.

For more information please contact Tim on +44 (0)1483 252529 or tim.jenkins@crsblaw.com.