Holding Over Commercial Lease UK — Continuation Tenancy, Periodic Tenancy, and Tacit Relocation

LTA 1954 Continuation Tenancy — England and Wales

Part II of the Landlord and Tenant Act 1954 applies to most commercial tenancies in England and Wales. A key consequence is that a protected tenancy does not automatically expire on the contractual term date — instead, it continues as a statutory continuation tenancy on the existing terms until terminated in accordance with the LTA 1954 procedure. The landlord cannot simply accept the tenant's holding over and let the tenancy run on informally: doing so means the continuation tenancy continues indefinitely, on the existing rent, until the landlord serves a s.25 notice (or the tenant serves a s.26 request) setting in motion the LTA 1954 procedure. The s.25 notice must be served between 6 and 12 months before the proposed termination date. If the landlord wishes to oppose renewal, the s.25 notice must be a 'hostile' notice specifying one or more of the grounds of opposition in s.30(1)(a)–(g) LTA 1954. If the landlord is content to grant a new lease, the s.25 notice is 'friendly' and proposes terms for renewal. Meanwhile, the tenant holding over under LTA 1954 pays rent at the existing contractual rate — not a market rate — unless the landlord applies for an interim rent under ss.24A–24D LTA 1954 (assessed at the open market rent for the new tenancy, which may be higher or lower than the contractual rent). Interim rent applications must be made within 6 months of the termination of the tenancy by the court.

• LTA 1954 protection: most commercial tenancies in England and Wales have statutory security of tenure — the tenancy continues past the contractual term date until the LTA 1954 procedure is followed
• Continuation rent: during holding over under LTA 1954, the tenant pays the existing contractual rent — the landlord must apply for interim rent (ss.24A-24D) to obtain a market rent assessment
• s.25 notice: landlord must serve a s.25 notice 6–12 months before the proposed termination date; 'hostile' notice (opposing renewal) or 'friendly' notice (proposing new terms); prescribed form (SI 2004/1005)
• s.26 request: tenant may serve a s.26 request for a new tenancy — once served, the landlord must respond with a counter-notice within 2 months if opposing renewal; failure to counter-notice = deemed consent to new tenancy
• Court application: if terms are not agreed, either party must apply to the court within the statutory time limits (generally 4 months from s.25 notice; on or before the proposed commencement date in a s.26 request)

Contracted-Out Leases — Periodic Tenancy at Common Law

Where a commercial lease has been contracted out of LTA 1954 (under s.38A, by the landlord and tenant executing a statutory declaration or simple declaration in the prescribed form before the lease is granted), the statutory security of tenure provisions do not apply. On expiry of the contractual term, the tenant has no right to remain and no right to a new lease. If the tenant holds over (remains in occupation after the term expires) and the landlord accepts rent — or simply does not take immediate steps to terminate — a periodic tenancy arises at common law. The period of the periodic tenancy reflects the period on which rent is paid: if rent is paid quarterly, a quarterly tenancy arises; monthly payments create a monthly tenancy. The periodic tenancy is on the same terms as the expired lease (so far as applicable), but without LTA 1954 protection. To end a common law periodic tenancy, the landlord must serve a notice to quit of at least the length of the rental period (one quarter for a quarterly tenancy; one rental period for a monthly tenancy) expiring at the end of a period of the tenancy. No specific form is required, but the notice must be clear and unambiguous. The landlord can also seek a court order for possession, but a valid notice to quit must usually be served first. Crucially, the landlord should not simply stand by and allow the periodic tenancy to continue indefinitely — unlike a LTA 1954 continuation, there is no mechanism for interim rent, and the rent may become increasingly below market as the periodic tenancy runs on.

• Contracted-out lease: no LTA 1954 protection — tenant has no statutory right to remain or to a new tenancy; on expiry, the landlord can require the tenant to vacate without following LTA 1954 procedure
• Periodic tenancy by holding over: if the landlord accepts rent after expiry of a contracted-out lease, a periodic tenancy arises on common law terms — typically quarterly; no LTA 1954 protection applies to the periodic tenancy
• Notice to quit: to end a common law periodic tenancy, serve a notice to quit of at least one full rental period expiring at the end of a period — no prescribed form but must be clear and unambiguous
• Below-market risk: a periodic tenancy runs on the original lease rent; the landlord cannot require a market rent review unless the periodic tenancy terms include a review mechanism or a new lease is agreed
• Best practice: as the contracted-out lease approaches expiry, serve a notice to quit immediately after expiry if the tenant is to vacate, or negotiate and execute a new lease before expiry to avoid the periodic tenancy

Tacit Relocation — Scotland

In Scotland, commercial leases do not have the equivalent of LTA 1954 security of tenure (the business tenancy provisions of LTA 1954 do not extend to Scotland). Instead, Scottish commercial leases are governed by the common law doctrine of tacit relocation (tacita locatio). When a commercial lease in Scotland reaches its contractual term date and neither party has served notice to quit, tacit relocation operates automatically: the lease is renewed for a further period equal to the lesser of one year or the original duration of the lease (for leases of less than one year, the renewal period matches the original term). This renewal is automatic — it happens by silence, without any action by either party. If neither party then serves adequate notice to quit before the next term date, the lease renews again for a further year. This can continue indefinitely, trapping the landlord in a lease that has passed its commercial purpose. To prevent tacit relocation, notice to quit must be served. For Scottish commercial leases, the notice period is 40 days before the termination date (for leases of one year or more) — though the lease itself may specify a different notice period; if so, the longer of the common law and the lease notice period applies. The notice must be clear and unambiguous. For very long leases (14+ days), the Leases Act 1449 applies and registration protections may be relevant. Unlike LTA 1954, there is no prescribed form and no rent continuation mechanism equivalent to interim rent.

• Tacit relocation: automatic renewal of a Scottish commercial lease for up to one year if neither party serves notice to quit before the contractual term date — happens by silence; no action needed by either party
• Notice period: at common law, 40 days' notice to quit before the termination date (for a lease of one year or more); the lease may specify a longer notice period; the longer period prevails
• No LTA 1954 in Scotland: there is no Scottish equivalent of the business security of tenure provisions of the Landlord and Tenant Act 1954 — Scottish commercial tenants have no statutory right to a new lease
• Risk of repeated renewal: if notice to quit is not served each year, tacit relocation renews the lease annually in perpetuity — landlords must diarise the notice deadline well in advance of each term date
• Rent during tacit relocation: during a tacitly relocated period, rent continues at the existing contractual rate unless the parties agree a new rent; there is no Scottish interim rent equivalent to ss.24A-24D LTA 1954

Practical Steps for Landlords at Lease Expiry

For commercial landlords, the risk of inadvertent holding over — or of a tenant holding over without the landlord's interests being properly protected — is significant. Best practice as lease expiry approaches: (i) diarise the LTA 1954 or tacit relocation notice dates at least 12 months before expiry (for LTA 1954, the s.25 notice window is 6–12 months before the proposed termination date; for Scotland, the tacit relocation notice must be served 40 days before term); (ii) decide whether to grant a new lease, let the tenancy hold over temporarily, or oppose renewal; (iii) if a new lease is to be granted, start heads of terms negotiations 9–12 months before expiry to allow time for solicitors to document the new lease before expiry; (iv) apply for interim rent under ss.24A-24D LTA 1954 as soon as the tenancy enters the holding-over period if the contractual rent is below market — this maximises the landlord's income during the holding-over period; (v) if a contracted-out lease is expiring and the landlord does not want to grant a new lease, serve notice to quit immediately after expiry and do not accept any rent thereafter (accepting rent creates a periodic tenancy); (vi) in Scotland, serve notice to quit at least 40 days before the term date each year if the landlord does not wish tacit relocation to operate.

• Diarise notice deadlines: for LTA 1954, the s.25 notice window is 6–12 months before the proposed termination date — diarise 12 months ahead to allow time to decide on renewal or opposition strategy
• Interim rent application: apply under ss.24A-24D LTA 1954 as soon as the tenancy enters LTA 1954 continuation to capture any market rent uplift during the holding-over period
• Contracted-out leases at expiry: do not accept rent after expiry of a contracted-out lease unless intending to create a periodic tenancy; serve notice to quit immediately if the tenant is to vacate
• Scotland — diarise 40 days: for Scottish commercial leases, serve notice to quit at least 40 days before the contractual term date each year if tacit relocation is to be prevented
• Heads of terms timing: start lease renewal heads of terms 9–12 months before expiry; allow 3–4 months for solicitors to document and exchange the new lease; avoid holding-over risk by completing the new lease before the contractual term date

Frequently asked questions