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Statutory Compensation under the Landlord and Tenant Act 1954

Dipti Ahir, a Solicitor in the Commercial Property team explains how statutory compensation works under the Landlord and Tenant Act 1954.

A tenant who enjoys the benefits of security of tenure under the Landlord and Tenant Act 1954 (the Act) could be faced with a Section 25 Notice from their landlord that opposes a new tenancy.  In such circumstances the landlord would have to specify the grounds on which they oppose such a renewal and the tenant may be entitled to compensation.

How much compensations would the tenant be entitled to?

If the tenant has been in occupation for less than 14 years the tenant becomes entitled to the compensation of one times the rateable value of the property when they quit the property.  If however they have been there for 14 years or longer they would be entitled to twice the rateable value. The rateable value in effect at the time the notice is served will be the relevant figure for compensation.

Stay in the property until the S25 notice expires or you may lose your compensation

Where a tenant is entitled to compensation they should be careful not to compromise their position.  Section 23 of the Act states that the property must be occupied by the tenant for the purposes of business. A potential risk to a tenant who has been served with a S25 Notice is that they could lose the protection of the act by vacating their property early or winding up their business from the current property before the expiry of the S25 Notice. 

A landlord who wants to avoid paying compensation could claim the statutory right had been lost in these circumstances and so no compensation is due.  This leaves the tenant in a position where they have to make a claim for the compensation and would have to prove that they had continued to satisfy the criteria under Section 23 in court. Therefore a tenant who is entitled to statutory compensation should be prepared to remain in occupation until the expiry of the S25 Notice UNLESS they are able to formally agree an earlier date and receive the compensation on leaving the property early. So in short, the tenant should only vacate early if they have received the compensation payment. 

If they leave immediately after the S25 Notice expires, the tenant would automatically be entitled to compensation. However, just because a tenant is entitled to compensation does not mean that the tenant will be given the compensation when they vacate.  A landlord may still try to challenge the requirement to pay such compensation.

Want to learn more?

Visit our Commercial Property page here to find out about the services we can offer for your business, and our Lease renewals page has more information about the Landlord and Tenant Act 1954 here.

To speak to one of our friendly, knowledgeable solicitors about your Commercial Property case, just give us a call on 020 8768 6869 or visit the team at our Crystal Palace or West Wickham offices.

About the Author

Dipti Ahir is a commercial property Solicitor based at our Crystal Palace office. She acts for both tenants and landlords in the grant of new leases, assignment of leases, grant of subleases as well as surrenders, re-grants and leasebacks. She has extensive experience of dealing with development land, including drafting and negotiating option agreements, conditional contracts, joint venture agreements, overage deeds, and pre-emption arrangements.  In addition to development work she is experienced in business sale and purchases and share purchase agreements.

Blog revised and updated - April 2019

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