Inheritance tax and the 7 year rule

One of the most effective ways in which you can reduce the amount of tax to be paid by your estate after you die is by giving away cash or assets during your own lifetime. The effect of such gifts can be to remove their value from your estate, thereby reducing the amount of inheritance tax due after death. Below we look at which lifetime gifts are automatically exempt from IHT and how potentially exempt transfers, or PETs, work under the 7 year rule.

What lifetime gifts are automatically exempt from IHT?

Gifts as between spouses or civil partners are usually made tax-free, regardless of the circumstances or timescales involved. There are also other lifetime gifts that will not count toward the value of your estate because they are automatically exempt. These include:

•   The annual exemption: here you can gift up to £3,000 each tax year

•   Small gift exemption: an unlimited number of small gifts can be made of up to £250 per person, provided no other gifts were made by you to these recipients

•   Wedding or civil ceremony gifts: these gifts are subject to limits depending on the relationship between you and the recipient, and can range from £1,000 to £5,000

•   Living costs: you can make payments from your surplus income to help with the living costs of a child aged under 18 or an elderly relative.

What are potentially exempt transfers and the 7 year rule?

A potentially exempt transfer (PET) is a gift that is not automatically exempt, but for which no inheritance tax will be payable if sufficient time has passed since the making of the gift and the date of death. A PET will only become chargeable to IHT where you fail to survive for 7 years from the making of the gift. Under the 7 year rule, if a gift is made more than 7 years prior to the date of death, regardless of the nature or size of the gift, no inheritance tax will be payable.

However, even for gifts that fall within 7 years of death, some tax relief may still be available in the form of taper relief if your estate is chargeable to inheritance tax. Taper relief applies if the total value of any gifts made within the 7-year period prior to death exceeds the inheritance tax-free threshold of £325,000 (2020-2021).

Under the taper relief rules, inheritance tax is payable on a sliding scale, from the full 40% IHT rate for gifts made less than 3 years ago, down to just 8% for gifts made within 6-7 years of death. As such, lifetime gifts, even in respect of those made within a few short years prior to the donor’s death, can have a significant impact on the amount of tax payable after you die.

To understand more about how lifetime gifts can be used to minimise the tax payable on your estate on death, together with other mechanisms that can be used to reduce any liability to IHT, professional advice should be sought from an Estate Planning and Wills expert.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

The effectiveness of an Enduring Power of Attorney (EPA)

Being able to appoint a person to make important decisions on your behalf in the event of illness or accident can give you and your loved ones peace of mind for the future. For anyone who has already made provision for this in previous years, you may have in place what’s known as an Enduring Power of Attorney (EPA). However, the EPA preceded the Lasting Power of Attorney (LPA) that was introduced under the Mental Capacity Act 2005.

Below we look at the effectiveness and scope of EPAs and how these differ to LPAs, including whether you should now replace an existing EPA with an LPA.

What is an Enduring Power of Attorney?

Prior to 1st October 2007, when the 2005 Act came into force, an individual could use an EPA to appoint someone they trusted, typically a friend or relative, to be able to deal with their general property and financial affairs if needed. This could include giving that person the authority to make bank withdrawals, collect benefits or a pension, pay bills or even sell their home. However, following the introduction of the 2005 Act, LPAs have now replaced EPAs.

Still, even though the Enduring Power of Attorney has been gradually phased out, a properly executed EPA in the prescribed form that pre-dates the 2005 Act coming into force should still be valid — although it may not give you the same flexibility and benefits as an LPA.

How does an EPA differ to an LPA?

Both an EPA and LPA are legal documents that give another person or persons (the attorneys) the authority to make certain decisions on behalf of the appointing individual (the donor) in circumstances where the donor needs help or is no longer able to make their own decisions.

However, any existing EPA will only cover decisions about a person’s property and finances. As such, the most important distinction between an EPA and an LPA is that the LPA can also include the power for your appointed attorney(s) to make important decisions about your health and welfare. This can include things like your day-to-day care, where you should live and even life-sustaining treatment. In this way, the 2005 Act increased the range of decisions that people can authorise others to make on their behalf.

Should I replace my EPA with an LPA?

Provided any existing EPA has been properly drafted and met the legal requirements upon execution, this should still be valid. As with a Lasting Power of Attorney, a valid EPA allows an attorney to make decisions even if the donor lacks capacity to manage their own affairs.

An EPA can be used before someone loses their mental capacity with the donor’s permission. It can also be used after the donor has lost the ability to make their own decisions, as long as the EPA has been registered with the Office of the Public Guardian.

However, if you want someone to make decisions about your personal welfare in the event that you lose the ability to make your own medical and care decisions in the future, you will need to make an LPA whilst you still have the capacity to do so. You will also need to substitute any existing EPA with an LPA if you're looking to replace your appointed attorney(s), or an attorney is no longer able to act on your behalf.

By planning ahead, and by securing professional help to put in place the power for your attorney(s) to manage decisions about both your financial affairs and personal welfare, you can significantly lessen the emotional strain on your loved ones if the worst should happen.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

The legal meaning of lacking mental capacity

If you’ve been informed that a loved one no longer has mental capacity, perhaps following an unexpected illness or injury, this can be an emotionally fraught time where important decisions may need to be made about either their immediate or long-term care.

By understanding what it means when someone lacks capacity, and how this decision is reached by healthcare professionals, this can help to prepare you for how the diagnosis will affect your loved one and how their best interests can be safeguarded moving forward.

What does lacking mental capacity mean?

The Mental Capacity Act 2005 sets out the legal framework of how those working with or responsible for caring for someone who lacks capacity should act and make decisions on that person’s behalf. Under the Act, an individual lacks capacity in relation to a matter if: “at the material time s/he is unable to make a decision for himself/herself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.”

As such, a person who lacks mental capacity is someone who does not possess the ability to make a particular decision for themselves at the time the decision needs to be taken. This reflects the fact that someone may lack capacity to make some decisions, but will have capacity to make others. For instance, they may be able to make minor decisions about everyday issues such as what to wear or eat, but unable to make more significant and complex decisions about say, financial matters or medical treatment. 

As a result of illness or injury that causes their capacity to change, a person may also lack the ability to make decisions at a certain time, yet be able to make that decision at a later time. 

How is lacking mental capacity decided?

Having identified whether an individual suffers from an illness, injury or other issue that could cause the person to lack mental capacity (the diagnostic stage), the healthcare professionals tasked with deciding if someone lacks capacity will then need to consider the individual’s ability to make certain decisions for themselves (the functional stage). 

A person will be classed as unable to make a decision for themselves if they’re unable to:

•   understand the information that's relevant to a particular decision

•   retain that information for as long as is necessary to reach a conclusion

•   use or weigh that information as part of the decision-making process, or

•   communicate their decision by talking, using sign language or by any other means.

How should someone lacking mental capacity be treated?

Given the potential impact of decisions being made on behalf of those who lack capacity to make specific decisions for themselves, the legal requirements under the 2005 Act are underpinned by the following five key principles:

•   An individual must be assumed to have capacity unless it is established otherwise

•   An individual must not be treated as unable to make a decision unless all practicable steps to help him or her to do so have been taken without success

•   An individual must not be treated as unable to make a decision merely because they’ve made an unwise decision

•   Any act done or decisions made on behalf of an individual who lacks capacity must be done in their best interests

•   Anyone taking any action or making any decisions on behalf of an individual who lacks capacity must first consider any options that are less restrictive of their rights and freedoms.

The purpose of these statutory principles is to balance a person's right to make their own decisions with their right to be protected from harm if they lack capacity. If, however, you have any concerns about decisions that have been made by healthcare professionals on behalf of a loved one, including the outcome of any mental capacity assessment or what is in that person’s best interests, you should seek expert legal advice immediately.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

How do you get an annulment?

There are two ways to legally bring a marriage to an end: a divorce or an annulment. Although annulments of marriage are relatively rare in the UK, they are legally possible. Essentially, an annulment acknowledges and declares that the marriage has become or was always invalid, i.e. that it no longer or never validly existed. In contrast, a divorce is a legal process in which a valid marriage is dissolved. While a divorce legally ends or dissolves a marriage, an annulment can be used to declare the marriage null and void, as if the marriage never existed. 

Even though the outcome from obtaining a decree of nullity or decree absolute is broadly the same, such that you and your former spouse are each free to re-marry or enter into a civil partnership, the grounds for getting an annulment or a divorce are entirely different. This means that you don’t necessarily get a choice between applying for an annulment or a divorce, where you can only get an annulment in very limited circumstances.

In order to annul a marriage, you or your spouse must have either have lived in England or Wales for a period of no less than one year or had a permanent home in England or Wales for at least six months. You would also need to show either one of the following: 

•   The marriage was not legally valid in the first place, ie: it was ‘void’

•   The marriage was legally valid but meets one of the criteria that would make it ‘voidable’

A void marriage, ie; one that will be considered by the Court as having never taken place, are the ones where, for example:

•   You are closely related to the person you married

•   You or your ex were under the age of 16 when you married

•   You or your ex were already lawfully married or in a civil partnership when you married.

If a marriage was never legally valid, the law says that it never existed. That said, you may still need the paperwork, ie; a ‘decree of nullity’, to prove this if you want to get married again. In contrast, a marriage that is voidable, ie; that will be considered by the Court as capable of being annulled, will be treated as if it had existed up until a decree of nullity is granted. These are the ones where, for example:

•   The marriage has not been consummated owing to either the incapacity or refusal of one party to consummate it, although this does not apply to same-sex couples

•   If one of you did not properly consent to the marriage, such as where you were forced into it or because you were not of sound mind

•   If one of you had a sexually transmitted disease at the time of the marriage

•   If the woman was pregnant by another man at the time of the marriage

•   If either party is in the process of transitioning to a different gender, or one of you did not know that the other person had an acquired gender at the time of the marriage.

Unlike divorce, where you have to wait for a year, you can apply to have a marriage annulled as soon as you get married, leaving you free to start over more quickly. However, annulments are a complex and misunderstood area of law, especially when it comes to dealing with financial separation, so specialist legal advice should always be sought.  

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

No fault divorce is finally due to come into force

The Divorce, Dissolution and Separation Act 2020 due to come into force in April 2022 is set to revolutionise the way in which couples can dissolve their marriage with the long overdue introduction of no-fault divorce in England and Wales.

As the law currently stands, one spouse has to initiate the process of filing for divorce and, within that process, make accusations about the conduct of the other spouse — such as unreasonable behaviour, adultery or desertion — or otherwise face up to five years of separation before a divorce can be granted. Even where a couple has made a mutual decision to separate, and both parties agree to getting divorced, absent proof of one of the three prescribed fault-based reasons as set out under the Matrimonial Causes Act 1973, the couple must still be separated for a period of two years before the marriage can be legally dissolved.

However, under the proposed new system, couples looking to move on with their lives more quickly will no longer need to become embroiled in a blame game following the breakdown of their marriage. Specifically, the new Act is set to replace the existing requirement by one party to evidence either poor conduct or a prolonged period of separation with a non-fault process. Instead, either or both parties can apply for a divorce by simply filing a statement that the marriage has irretrievably broken down. That statement will then be treated by the court as conclusive evidence that the marriage has indeed broken down and an order must be made.

Crucially, a minimum timeframe of 6 months from the initial application stage to the granting of a final order will also be created under the Act. This will give couples the time to reflect and reconsider, or where reconciliation is not possible, the opportunity to agree important arrangements for the future, such as how best to look after their children.

The proposed new Act is not designed to undermine the institution of marriage, hence the mandatory period of reflection, rather the rationale behind these reforms is that where divorce is inevitable, the law should not exacerbate conflict or harm a child’s upbringing. The provisions are intended to stop separating couples having to make unnecessary allegations against one another, and instead help them concentrate on resolving their issues amicably. By sparing couples the need to play the “blame game”, these changes will remove the antagonism that this creates so families can better move on with their lives.

Starting a divorce can be a very stressful time for all those involved, where the additional stress of having to attribute blame does not assist the situation, especially if the parties are doing their best to avoid any acrimony for the sake of their children. In some cases, the need to blame one another can often act as a catalyst for further fallout over care and access arrangements, as well as financial arrangements. The shift in the system from fault-based to no-fault divorce will finally mean that parties can, at the very least, deal with the dissolution of their marriage in a constructive and non-confrontational way.

 Legal disclaimer 

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Can a will be witnessed remotely?

In the wake of Covid-19, more and more people are putting in place a written will, where the pandemic has served as a stark reminder of our own mortality and the importance of planning ahead. Furthermore, in a world where self-isolation and social distancing measures remain a normal part of every day life, having a last will and testament witnessed remotely is, at least for now, a legalised and accepted practice.

Under the Wills Act 1837, for a will to be valid it must be in writing and signed by the testator in the presence of two witnesses present at the same time. The witnesses are also required to sign the document in the testator’s presence. However, these rather inflexible requirements were preventing those who had tested positive for coronavirus, or were otherwise required to self-isolate, from executing a valid will.

As such, new legislation designed to combat these practical difficulties was rushed through Parliament by way of the Wills Act 1837 (Electronic Communications) (Amendment) (Coronavirus) Order 2020 SI 2020/952. This specifically amended the provisions under the 1837 Act relating to signing and attestation of wills, where the meaning of “presence” for the purposes of “being in the presence of two or more witnesses” or “in the presence of the testator” includes presence by means of videoconference or other visual transmission.

The government has also advised that the use of video technology should only be used as a last resort. This is because the process of remote witnessing increases the possibility for fraud and abuse, where witnesses will simply be unable to tell if a third party is present, potentially coercing or forcing the testator to sign. The need to forward the signed will to the witnesses for their signatures also provides an opportunity for the will to be amended or substituted.

Admittedly, the previous system was by no means perfect, although the temporary new law may now see a spike in cases of undue influence or fraud following the deaths of those who have signed their will in this way. It certainly seems to be the right time for a more permanent solution to be put in place, one which provides flexibility if needed, while continuing to protect the elderly and vulnerable from those seeking to exploit any procedural loophole.

Legal disclaimer 

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Grizedale Arts Complete Farmer’s Arms Purchase

Thanks to an incredible fundraising campaign, Grizedale Arts have completed the purchase of The Farmer's Arms at Lowick Green, Ulverston with the help of BSG Solicitors.

Following the launch of an investor appeal in November 2020 the campaign attracted over £300k in offers in just 21 days. The project was further boosted by a social investment loan from the Architectural Heritage Fund, a significant contribution from Grizedale Arts’ own charity reserves and many small donations.

The property had been empty for over two years, but now has a bright future ahead with exciting plans to bring something for everyone in the community from pop-up shops to cookery and exhibition spaces.

Adam Sutherland, Director at Grizedale arts explained:

“There is a huge opportunity to develop a hybrid pub for the 21st Century. The traditional pub model is struggling but that’s not to say it should be abandoned, rather it just needs a bit of reinvention. Over the next year, The Farmer’s Arms will be transformed into a creative and industrious rural hub.

As well as a place where food, drink and a bed for the night can be found, The Farmer’s Arms of the future will become a thriving community supporting all sorts of opportunity and creativity. A volunteer programme for both locals and visitors will offer skills, training and social benefits, supporting the running of the project and informing its direction.”

Project Manager Emma Sumner said:

 “This is a once in a lifetime opportunity to save an historic building and retain it as a community hub. The Crake Valley has many innovative rural businesses, alongside celebrated visitor attractions such as Brantwood and the Ruskin Museum, and The Farmer’s Arms could help in the area’s recovery period. Employment will be a key issue and we believe The Farmer’s Arms will act as a gateway to not only the wonders of the valley, but also the world of work and enterprise, innovation and diversification.”

Deborah Turner, Head of Commercial Property at BSG Solicitors acted for Grizedale Arts in the acquisition and added:

“The Farmer's Arms was once a much-loved local institution and to see it decay over the last couple of years has been heart breaking for many people. We are delighted to have been able to assist Grizedale Arts in purchasing this special building and look forward to seeing their plans develop over the coming months and years.”

The first phase of the project expected to be open by summer 2021.

Pictured Emma Sumner and Adam Sutherland, photos courtesy of Karen Guthrie.

The importance of putting in place a Lasting Power of Attorney (LPA)

The importance of putting in place a Lasting Power of Attorney cannot be underestimated, especially during the ongoing pandemic with the risk of any one of us or our loved ones becoming critically ill. Indeed, this has been the recent plight of television host, Kate Garraway, who has endured a prolonged period of her husband being hospitalised from coronavirus.

The fact that the distraught TV presenter has been unable to deal with any of the bills or bank accounts in her husband’s name has undoubtedly added to the enormous pressure that she has been under during this difficult time. In a recent interview, Kate Garraway admitted that many of the practical problems she had been forced to face over the past year could so easily have been prevented if she and her husband had given each other a Lasting Power of Attorney.

A Lasting Power of Attorney, or LPA, is a legal document in which you can appoint someone to manage your property and financial affairs in the event that you lose the mental capacity to do so yourself, or even if you temporarily need assistance, for example, during a stay in hospital. It is a common assumption that a spouse or partner would be automatically entitled to handle such matters on one's behalf if the need ever arose, but this is simply not the case.

An LPA can also be used where important decisions about your health and welfare need to be made, from your day-to-day care to having a say about life-sustaining medical intervention.

For so many of us, the idea of becoming seriously ill or injured, such that we are no longer able to make our own decisions or manage our own affairs is beyond comprehension. Sadly, it can and does happen, not just through old age and infirmity but often as a result of unexpected illness or accident. We simply cannot predict what is round the corner.

Without an LPA, your loved ones would have to apply through the courts, for example, for the right to manage your finances, and even then their application may not necessarily be granted. When it comes to important decision-making about either your property and finances, or your health and welfare, an LPA will therefore significantly lessen the emotional and practical strain on relatives should you become incapacitated.

By seeking legal advice on how to put in place a Lasting Power of Attorney, you can feel reassured that important matters, such as money or medical decisions, can be easily dealt with in the event of illness or accident. Needless to say, the best time to do this is while you are fit and healthy. This will allow you to make a rational and dispassionate decision about who best to appoint and what you would like them to deal with. It will also ensure that no questions can be raised over the validity of your decision-making and the document itself.

Having registered a Lasting Power of Attorney with the Office of the Public Guardian well in advance of any critical situation, you can go on to live your life with the peace of mind that your future, and that of your family, has been properly safeguarded.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

The digital dilemma of leaving online assets in your Will

When writing a Will, consideration must not only be given to any physical assets that you would want your loved ones to benefit from after you’re gone, but also any digital assets. This could include, for example, bitcoins or other forms of e-currency that you may have stored in virtual wallets. It could also include any unclaimed balance in your Paypal account from eBay sales or other selling platforms, or winnings in an online lottery or betting account.

Needless to say, the importance of leaving your executors a trail of breadcrumbs to enable them to access any password protected online investments or accounts, cannot be underestimated. In most cases, given the highly encrypted nature of virtual wallets or other types of digital assets, any failure to leave clear instructions will leave your loved ones locked out of your online fortune forever.  In some cases, your executors may not even be aware of the existence of any digital assets, let alone have the right information to access these. 

It’s therefore vital that you record within your Will or other document the nature of any digital assets that form part of your estate. It’s also important that you provide clear instructions as to where your digital assets are stored, for example, on either a USB or other portable storage device, or on some form of cloud type service, as well as how these can be accessed. 

That said, care must be taken so as not to compromise your online security, either during your lifetime or at any point prior to your executors being able to realise your digital assets. In particular, it’s worth noting that upon application for the grant of probate, your Last Will and Testament becomes a public document that anyone can apply to see. This means that important location and access information contained directly within your Will would severely compromise the security of any online investments or accounts.  

Clearly, therefore, there’s a fine line between providing a sufficient trail of breadcrumbs for your executors to identify and access any digital assets, and protecting those assets from hackers or untrustworthy hands. Still, this ‘digital dilemma’ should not prevent you from gifting these assets to your loved ones, provided you take appropriate measures to ensure any important information is not contained within the Will itself — but preferably within a securely stored and password protected separate document — and that any usernames and passwords are only accessible by those you trust implicitly.  

By seeking expert advice to ensure your digital assets remain secure during your lifetime but accessible upon death, you can feel confident that your loved ones will benefit fully from your digital endeavours after you’re gone — without the worry of losing your online fortune, however big or small, to fraudsters, or inadvertently locking those assets away for good. 

Your legal advisor can help you to find a suitable way of effectively documenting your digital assets within your Will and other related documentation, in this way providing your executors with the instructions they will need when you’re no longer around.  

Legal disclaimer 

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.

Back to basics under the Landlord & Tenant Act 1954

When leasing commercial premises, understanding the provisions of the Landlord and Tenant Act 1954 (“LTA") can be crucial for both landlords and tenants alike. The LTA essentially governs the rights and obligations of landlords and tenants of premises which are occupied for business purposes and offers important legal protections to both parties.

From the tenant's perspective, when leasing new premises, the future preservation and success of their business may hinge upon the 'security of tenure' provided for under the terms of their lease arrangement. Security of tenure refers to the tenant's right to remain in occupation of the business premises upon expiry of the lease term. As such, this is one of the most important basic rights for business tenants provided for by the LTA.

In broad terms, this means that the tenant has a statutory right to renew their tenancy, either on the same or similar terms, when their existing lease comes to an end. In addition, the tenancy will not automatically terminate on expiry of the current lease. Instead, it will continue on the same terms - otherwise known as the tenant 'holding over' - until it is renewed or formally brought to an end, for example, by written notice to quit from the tenant.

From the landlord's perspective, the LTA provides specific, albeit limited, grounds of opposition to the grant of a new tenancy that can be raised. These statutory grounds include where the tenant is in substantial breach of their contractual obligations, such as a failure to pay rent; where the landlord wants to let or sell the premises as a whole, and the tenant occupies only part of the premises; or where the landlord wants to redevelop the premises or occupy the property or land for the purposes of its own business or residence.

That said, even where a landlord is able to oppose the grant of a new tenancy successfully, they may still be liable to pay statutory compensation to the tenant where recovery of the commercial premises has been sought on a non-fault basis.

Accordingly, given the limited grounds upon which a landlord can object to the grant of a new tenancy and the potential exposure to pay compensation, the LTA also provides the parties with the ability to contract out of its statutory provisions before entering into a commercial lease. This may be, for example, where the landlord is only looking for a short-term let.

In these circumstances, where a tenant has effectively agreed to forfeit their security of tenure, they will lose their statutory right to renew their tenancy. Unless the landlord subsequently agrees to the grant of a new tenancy, it will determine on the expiry of the lease term. In this way, a landlord can regain possession of its property without justifying its actions by reference to specific tenant default or other non-fault grounds.

That said, the law governing security of tenure for business leases can be complex, not least when it comes to complying with the strict statutory procedures to be used by landlords and tenants of commercial premises in respect of requests, notices and statutory declarations.

In some cases, a failure to follow the correct procedure in the prescribed form can render the process void. By way of example, the net effect of a tenant failing to correctly make a statutory declaration agreeing to waive their right to renew their lease will result in them retaining their security of tenure, contrary to the intentions of the parties.

For detailed advice on the rights and responsibilities of commercial landlords and tenants, expert legal advice should always be sought from a commercial property specialist before entering into a new lease. In this way, your advisor can help to negotiate terms tailored to your specific needs and thereby protect your legal position moving forward.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. 

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.