It’s a fact that lots of business were affected by the economic downturn and many are still facing the effects of it. However, it would not be untrue to state this was most keenly felt by smaller businesses and landlords. A trade or business if carried out from a building or premises falls within the ambit of Part 2, Landlord and Tenant Act 1954.
The most prominent feature of the 1954 Act is the security of tenure it gives the Tenant. Put simply, a tenant who gets a business lease or tenancy comes under the protection offered by part 2 of the 1954 Act, unless he decides to exclude that security away. However, that is another matter entirely and not the scope of this article.
What this means is that unless a landlord had given the required notices to terminate the lease and get possession of the property, a tenant can stay in the premises even after the expiry of the lease.
Lack of profit meant businesses have periods where they find it hard to break even. This turnaround had a domino effect on the landlords and their business properties. For if the tenant’s business is not doing well then the landlords were not going to get their rents. In theory, if a tenant did not pay rent regularly the landlord could forfeit the lease and find a new tenant as this was normally stipulated in the lease itself. However, in reality, most landlords are just grateful to get what they could from their tenants and do not make much fuss about the irregularity of rents as long as it is paid. Because they know that if the current tenant is evicted, there is the possibility that the property might remain empty for a long time to come and that brings other additional burdens on the landlord.
What is an Interim rent?
It is the rent to be paid by a business tenant while its tenancy continues under section 24 of the LTA 1954 (what is known as holding over). It is distinct from the contractual rent of the lease that is being renewed.
The law relating to Interim Rent applies equally to both the landlord and tenant. Either party can make an application to the court. However, in this article we will look at the point of applying for an Interim Rent from the landlords’ perceptive.
Let us do a role play whereby we will see how this works.
You are the landlord. Let us say that the tenant’s business lease, which he had for some years expired six months ago. The tenant is still in the property (holding over under s.24 LTA 1954) and he is still paying you the same rent that he paid you according to the lease. He is a good tenant you have no grievance against him. However, you do have one major grievance, and that is the rent that you get from him. The Tenant is still paying you a rent that was agreed 5 years ago, which is, let’s say £40,000 per annum. You think that rent is well below the current market rent of £55,000 per annum and the tenant should be paying the market rent now. However, when you ask the tenant the new rent things start looking a bit acrimonious.
You are now struck. You can ask the tenant to leave but there are a few legal issues here that makes it hard for you to kick the tenant out:
Firstly, the lease expired 6 months ago. However, unless you had served the tenant a section 25 notice at least 6 months prior to the expiry of his lease you cannot evict the tenant. The tenant is protected by the 1954 Act. Since then, he has been holding over and paying you the usual rent which you had accepted. Therefore, there is a possibility the lease has now become a periodic tenancy. If that is the case, the tenant is protected by the security tenure under the 1954 Act again. You still cannot evict him without going through all the due process as prescribed by the Act. This will take several more months.
Secondly, if you want to give the tenant a new lease and he is not happy with the increased rent, he can simply say no and still hold over on the lease. If you want to evict tenant, you still have to go through the s.25 process above. Again you are struck. What do you do?
It would be best to negotiate with the tenant to see if you both can come to a settlement. If both agree then you can enter into a new lease amicably. But if the tenant thinks you are asking too much rent and decides he does not want to get into a new lease then you have no choice but to go down the long route, which is via the courts, by applying an for Interim rent.
Now let us look at the law and procedure.
When must the application be made?
Either the landlord or the tenant can apply to court to determine an interim rent following the service of a section 25 notice (by landlord) or a section 26 (by tenant) request. The court has a discretion as to whether an interim rent will be payable and, if so, what level of rent will be payable.
In this case, you as the Landlord will firstly serve the tenant with a section 25 Notice. This notice will indicate your proposal for a new tenancy, what the new rent would be, and how long the lease is for.
The application for interim rent can be made once a section 25 notice (section 24A(1), LTA 1954) has been served on the tenant.
The interim rent application must be made no more than six months after the “termination of the relevant tenancy” (section 24A(3), LTA 1954 ( www.practicallaw.com/2-508-5738) ). The application is made using the court form N208 under Civil Procedure Rules Part 8. There is a court fee payable. The application will be sent to your local county court where the property is.
Date from which interim rent is payable
Where a landlord’s section 25 notice has been served, the interim rent is payable from the earliest date of termination that could have been specified in the landlord’s notice (section 24B(1)-(2), LTA 1954).
Amount of interim rent
The general rule is that the interim rent will be the rent payable under the new tenancy (section 24C(2), LTA 1954 ( www.practicallaw.com/0-508-5744) ). But this is not always the case and depends on the merits of the individual case.
If you would like to talk more about this topic, contact Krish Moorthy on 0118 947 8638 for a free quotation or email firstname.lastname@example.org