How does the system of “section 25 notices” and “counternotices” operate, and what are the pitfalls for the landlord and tenant?
The Landlord and Tenant Act 1954 is generally considered to be one of the better drafted pieces of legislation in the field of landlord and tenant law and, in practice, it gives rise to fewer problems of construction than, say, the Rent Acts. Nevertheless, it contains numerous pitfalls and its “time specifications” frequently land even the most careful lawyers and surveyors into trouble. It is with this in mind that an enunciation of the main principles is embarked upon, particularly having regard to the problems of the newcomer to this area.
Part II of the 1954 Act has the effect of continuing the original contractual term between landlord and tenant and specifies that these “continuation tenancies” may only be brought to an end in one of the ways specified in the Act (section 24, and for the definition of “business tenancies” see section 23). Sections 25 and 26 of the Act specify two alternative methods of terminating the continuation tenancy, either by the tenant’s submitting an application for a new tenancy under section 26 or, more commonly, by the landlord’s serving on the tenant a section 25 notice in the prescribed form. The tenant may also serve a notice under section 27, indicating that he does not wish to allow a “continuation tenancy” to arise or (having arisen) to continue to endure.
The basic requirements of a section 25 notice are: (1) it must be in the prescribed form; (2) it must tell the tenant of his obligation to inform the landlord whether he is willing to give up possession; and (3) it must state whether the landlord proposes to oppose an application for a new tenancy by the tenant if one is made and, if so, it must set up at least one of the grounds of opposition set out in section 30 of the Act.
What are the time-limits for service of a section 25 notice and what are the pitfalls for the landlord?
The Act draws a distinction between a periodic and fixed-term tenancy and a periodic tenancy which includes any tenancy that started out as a fixed term but which the tenant holds over on a periodic tenancy (also a continuation tenancy) following the effluxion of the original term. Section 25(2) provides that:
Subject to the provisions of the next following subsection, a notice under this section shall not have effect unless it is given not more than twelve nor less than six months before the date of termination specified therein.
The important point to notice here is that, as well as the statutory time-limits in the Act, the landlord must consider the time-limits placed upon him by common law. A notice under the Act cannot be served to terminate the tenancy earlier than it could have been done at common law, so that a tenant on a monthly tenancy from the first day of each month cannot effectively receive a notice terminating his tenancy on (say) the 14th day of that month. In the case of a term certain, it follows that the landlord cannot express an expiry date earlier than the date on which the tenancy expires by effluxion of time: see subsection (4), but the court is not concerned with the time of day on which the tenancy is due to expire and a notice simply specifying the correct date will be valid: Re Crowhurst Park [4] 1 All ER 991. The position with periodic terms is sometimes the source of confusion.
The position is not that the section 25 notice must expire on the precise day that the tenancy could have been brought to an end by notice to quit but that the termination date specified should not be earlier than the earliest date on which it could have been brought to an end at common law. Therefore, if A takes a yearly tenancy of business premises on January 1 1977 he would not be validly served with a section 25 notice if the same were served on February 1 1988 to expire on July 1 1988, because that would be earlier than the earliest date that the tenancy could have been terminated at common law, which is to say the next January 1 (1989): Commercial Properties Ltd v Wood [8] 1 QB 15.
Where the lease in question contains a break clause, similar principles will apply, the section 25 notice itself operating as a valid break notice provided it complies with the Act. Where a break notice is validly served on its own without a valid statutory notice, it will have the effect of terminating the common law term, but the tenancy will continue under section 24 of the Act. In practice, both in relation to break notices and notices to quit for periodic tenancies, the landlord will first serve the common law notice to terminate the common law term and subsequently serve a section 25 notice terminating the continuation tenancy.
Are there any pitfalls for the tenant in the section 25 procedure?
The equitable principles relating to estoppel will apply both to landlord and tenant of a continuation tenancy under the 1954 Act, so that the tenant must not do acts which show him to recognise the validity of the notice if he wishes to take issue with it. Such acts may prevent his subsequently asserting a defect in the notice concerned, if one exists (see Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1] AC 850).
What “prescribed form” must be used by the landlord in his section 25 notice?
Section 25 provides that the notice should be “in the prescribed form specifying the date at which the tenancy is to come to an end …”. It frequently happens that notices are ineffective if they do not follow the same, or a very similar, wording to the current statutory instrument which sets out the correct form (Landlord and Tenant Act 1954, Part II (Notices) Regulations 1983 as amended). The microscopic examination of these notices generally undertaken by the courts will not preclude a notice which only omits, for example, marginal or guidance notes (Tegerdine v Brooks (1977) 36 P&CR 261). The validity of any omission in an individual case will depend on the individual circumstances of each case. Needless to say, an omission such as the landlord’s failure to state his grounds of opposition to the grant of a new tenancy would be regarded as fundamental by a court and such a notice would probably be held to be invalid.
The question in each case is: is the omission a material one in the circumstances of this particular case? Thus, a notice which fails to specify the year of determination may still be valid so long as this may be deduced from the accompanying notes: Sunrose Ltd v Gould [1] 3 All ER 1142. It seems that the fact that a tenant is not, in fact, misled by a notice is not itself the decisive factor; the important thing to discover is whether the irregularity is sufficiently serious potentially to mislead a tenant about his rights, so as to invalidate the notice in question.
The notice must state (accurately) the property it relates to and this may be the source of difficulties. In Moss v Mobil Oil Co Ltd [8] 06 EG 109 (CA) the lease appeared to be one lease of two separate properties. In those circumstances, was a notice which purported to relate only to one of them valid? On the particular facts the court were able to conclude that there were effectively two separate leases, albeit that they were contained in one document, and therefore the landlord’s purported termination was a valid one.
In Herongrove Ltd v Wates City of London Properties plc [8] 24 EG 108 the Chancery Division had to decide whether a notice was valid when it specified as the premises to which it related “the ninth floor” when, in fact, the tenants had been leased both the ninth floor and a quantity of storage accommodation on two other floors. It was decided, in all the circumstances, that a tenant confronted with such a notice could be materially misled about the part of the demise to which it related. Harman J thought that the test was whether the notice was “clear to a reasonable tenant reading it”, was it so plain that he could not be misled by it? In this case, ambiguity clearly could have existed in the mind of reasonable tenants and the court therefore found in favour of the tenants.
The landlord’s ground of opposition under section 30 of the Act
More thought must go into this part of the notice than to any other part, as failure to state a ground which is arguable and sustainable in court will result in the notice being a waste of time from the landlord’s point of view. Section 25(6) provides that: “A notice under this section shall not have effect unless it states whether the landlord would oppose … the grant of a new tenancy and, if so, also states on which of the grounds mentioned in section 30 of this Act he would do so”.
A merely technical breach of this subsection will not necessarily be fatal to setting up a ground of opposition under section 30. For example, where a landlord states two grounds one of which is relevant and the other is clearly irrelevant, simply because he failed to cross out the irrelevant ground, this will not be a material error: Lewis v MTC (Cars) [4] 3 All ER 423. However, a landlord is confined to the grounds stated in his notice when it comes to opposing the tenant’s application for a new tenancy. Again, technical words of opposition need not be used and often landlords will simply state the paragraph numbers under section 30 that they will be relying on and do not go on to state specific grounds. Once again, it is necessary to ask whether the tenant has been given notice of the substance of the landlord’s opposition to the grant of a new tenancy: see Harvey Textiles Ltd v Hillel (1978) 249 EG 1063.
Much case law exists on each of the seven grounds under section 30. Generally the court will look at the extent to which the landlord’s proposals, in relation, for example, to development or reconstruction of the premises, represent a bona fide scheme at the time of trial as opposed to an attempt to evict the tenant on a spurious basis in order to relet the premises at a higher rent.
An example of a typical case to illustrate this point would be the decision of the Court of Appeal in Hurstfell Ltd v Leicester Square Property Co Ltd [8] 2 EGLR 105. In that case, the premises consisted of two floors, the upper of which was used as living accommodation along with part of the lower floor. The remainder of the lower floor was let to the tenant and run as a cafe. The landlords sought to rely on ground (g) of section 30 in that they wanted to operate such a business from the ground floor themselves. The county court judge decided that the intention so to do appeared to be genuine and in the circumstances there was little basis for the higher court to interfere with the ruling of the lower court.
Conclusions
It needs to be reiterated that section 25 provides only one way of terminating a tenancy, the principal alternative method being, the less-often-used procedure, for the tenant to apply for a new tenancy under section 26. The requirements of the section in terms of notice periods and form seem quite often to create problems for professional advisers responsible for terminating business tenancies, and, no doubt, similar problems exist for students. It is necessary first of all to decide whether one is dealing with a periodic or fixed-term tenancy and then to look at the notice periods set out in subsections (3) and (4) respectively. Once this has been done, a decision must be made as to the ground of opposition under section 30. This will have to be sustained in court if the matter goes that far. It will be simple enough if a timetable is made of the relevant dates for each individual tenancy; it will be difficult enough to keep the lawyers busy if things go wrong.
Fixtures — what are they? Addendum
The item in this column on November 11 makes reference to contracts to dispose of fixtures (other than tenants’ fixtures) being subject to section 40 of the Law of Property Act 1925. Since the article was written, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 has come into effect (on September 27 1989). This section replaces section 40 and although contracts must still be in writing the requirements of section 2 are somewhat stricter. Furthermore, the doctrine of part performance will no longer be relevant since section 40 is abolished and contracts which do not comply with section 2 are not merely unenforceable, but invalid.
