Section 25 Notices for Landlords
Who serves a section 25 notice on a subtenant? Is it the sublease landlord or the headlease landlord? Well, that depends of course and the answer is not always straightforward.
The answer is hidden in the provisions of the Landlord and Tenant Act 1954.
A “competent” landlord
The Act talks about which is the “competent” landlord and the default answer is the immediate landlord; ie the sublease landlord. However, that party must have at least 14 months left to run on its headlease.
Furthermore, if the landlord wants to oppose on the owner-occupier ground of wanting to occupy the premises itself, then they must also have been the landlord for at least 5 years.
Frozen Value Limited and Heron Foods Limited
The practical application of these rules was confusing enough for Frozen Value Limited and Heron Foods Limited to take the question to court, and it was brought before the Court of Appeal earlier this year.
In this case, a landlord tried to oppose a tenant’s application for a renewal lease on the ground that the landlord wanted to occupy the property itself. The landlord was a tenant under a headlease. The headlease expired during the preceding 5 years and there was a 9 month gap until a new headlease was completed.
Previous caselaw has suggested that the 5 year period can be made up of different headlease terms linking together. However, what effect, if any, did the 9 month gap have on the landlord’s competency under the Act?
The court decided that the effect was disastrous; the 5 year period had been broken and the landlord was not competent to oppose the renewal lease.
In light of this decision, sublease landlords who want to regain occupation of sublet premises will need to act quickly. There will be time pressure on them to renew their own headleases so as to ensure they remain the competent landlord.
Head landlords may exploit this by forcing their head tenants to agree unfavourable new lease terms.
Return to Commercial Property Advice for Landlords.