Avoiding costly retail property disputes
There are over 11,200 charity shops in the UK and according to the Charity Retail Association, these provide their parent charities with around £363m of income each year. They also provide full time employment to around 26,000 people and volunteering opportunities for many more.
Charity shops play an important role in our high streets and local communities, and in recent years many have benefited from lower market rents and more flexible occupation terms, so that landlords can fill the space.
Charity trustees need to understand how secure their occupation is and what they can do to avoid a lengthy dispute with their landlord when its lease has come to an end.
Claims for dilapidations
Issues often arise where a lease has expired, no talks have been entered into or they have been inconclusive, the person who agreed the original terms on behalf of the charity has left and the landlord does not want to grant the charity a new lease. In this instance a charity may also have claims made against it for dilapidations, to pay for the cost of returning the property back into suitable repair or removing any fitted-out items in accordance with its obligations under its tenancy agreement.
Charities with a lease may have also been asked to contract out of some of the statutory rights which apply to usual business tenancies under the Landlord and Tenant Act 1954 and so they may not fully understand what legal rights and responsibilities they have, particularly at the end of the contractual term.
A lease will have certain holding over protection under the Landlord and Tenant Act 1954 (LTA 1954). This allows the charity to continue to occupy the property even after the contractual term of the lease has ended. If a charity has a protected lease under the LTA 1954, it has the statutory right to a new lease at the end of the term on similar terms to the current lease.
To initiate a lease renewal, a tenant may have to serve a Section 26 notice on the landlord to put forward terms for a new lease and generate a conversation around a new lease. A Section 26 notice cannot be served where the landlord has served a Section 25 notice that either offers a new lease or opposes the grant of a new lease.
On both sides there are certain steps which need to be taken when approaching these negotiations, and a charity may inadvertently end up in lengthy negotiations requiring legal assistance or in a dispute with a landlord. Care needs to be taken and it is important to seek the advice of a solicitor who is mindful of the costs that a charity could incur to resolve these situations.
Redevelop the premises
Where a tenant has validly served a Section 26 notice on the landlord, the landlord has two months from service of the notice to object to a renewal lease based on a limited number of grounds set out in Section 30 of the LTA 1954. The most common grounds for opposition are where the landlord intends to redevelop the premises or intends to occupy the premises themselves.
The Section 26 notice must set out a date that the new tenancy will take effect. If the lease is not agreed and completed before the date specified in the notice, the tenant will lose its security of tenure rights and the landlord does not have to offer the tenant a new tenancy.
If the lease is not completed before the deadline set out in the notice, the parties will have to agree to an extension, or the tenant will have to issue protective renewal proceedings at court. Unless the parties are far apart in their negotiations and proposed terms for a new lease, it is usually in the interests of both the landlord and the tenant to agree an extension of time to the deadline set out in the notice to avoid incurring significant fees in issuing and defending court proceedings.
Where a landlord is successful in opposing a new tenancy, the tenant may be entitled to compensation. This will depend on the ground relied upon by the landlord in opposing a new tenancy while the level of compensation is linked to the length of time the tenant has been in occupation of the premises.
It is important to take legal advice before agreeing to any new lease to understand the legal and financial obligations the charity will have in the future and to allow trustees to consider whether having a retail premises is still the right strategy for fundraising.
