Serving a Section 25 Notice: A Guide for Commercial Landlords

As a commercial landlord, there may come a time when you need to end or renegotiate a tenant’s lease. Whether you want to reclaim your property for redevelopment, increase the rent, or simply ensure the lease terms align with current market conditions, serving a Section 25 Notice is the formal legal process to initiate these changes.

This article explains what a Section 25 Notice is, how and when to serve it, and the key considerations landlords should keep in mind when dealing with commercial tenants.

What is a Section 25 Notice?

A Section 25 Notice is a formal legal document that a landlord serves to their tenant under the Landlord and Tenant Act 1954 to notify them of either:

1. Lease Termination – If you do not wish to grant the tenant a new lease, you must provide a valid legal reason.
2. Lease Renewal with New Terms – If you are open to renewing the lease but under revised conditions, you must outline these changes in the notice.

Unlike tenants, who can initiate a lease renewal using a Section 26 Notice, landlords must use a Section 25 Notice to take control of the process. By doing so, you determine whether the lease continues and under what terms.

When and How to Serve a Section 25 Notice

To be legally valid, a Section 25 Notice must be served within a specific timeframe:

• You cannot serve the notice before 12 months of the lease’s expiry date.
• You must serve the notice at least six months before the lease is due to end.

This means the notice must be sent between 6 and 12 months before the lease’s expiration. If you fail to serve it within this window, the tenant’s right to a lease renewal (if applicable) remains unaffected, and you may lose control over negotiations.

The notice must be in writing and should include:

• The termination date of the lease.
• Whether you oppose or agree to a lease renewal.
• If opposing renewal, the legal grounds for refusal (as set out in the Landlord and Tenant Act 1954).
• If proposing new terms, details of rent changes, lease duration, break clauses, and other amendments.

A Section 25 Notice must be served correctly, either via recorded delivery, personal delivery, or through a solicitor. Any errors in the notice can render it invalid, giving the tenant grounds to challenge it.

Legal Rights of a Landlord to Terminate a Lease (Inside the Act)

If a lease is inside the Landlord and Tenant Act 1954, the tenant has security of tenure, meaning they have the right to renew their lease unless the landlord can prove one of the following statutory grounds for refusal:

1. Breach of Lease Terms – If the tenant has failed to pay rent, caused property damage, or breached other lease conditions, you can refuse renewal.
2. Persistent Late Payments – If the tenant has a history of paying rent late, even if they have caught up, this can be grounds for refusal.
3. Alternative Use or Redevelopment – If you intend to demolish, reconstruct, or repurpose the premises, you can refuse renewal.
4. Landlord’s Own Use – If you or an associated business intend to occupy the property for your own use, you can decline a renewal.
5. Unsuitability of the Tenant – If the tenant’s business or behavior makes them an unsuitable occupant, this may be grounds for refusal.

If the tenant disputes the termination, they have the right to challenge the notice in court. In such cases, the burden is on the landlord to prove the stated grounds are valid.

Financial Obligations of the Landlord When Terminating an Inside-the-Act Lease

If a landlord successfully terminates a lease under certain statutory grounds, they may be liable to pay statutory compensation to the tenant. This applies when the lease is terminated for redevelopment or landlord occupation but not for tenant breaches (such as non-payment of rent).

The compensation amount is calculated based on the tenant’s length of occupation:

• Standard Compensation: Equal to one times the rateable value of the property.
• Enhanced Compensation: If the tenant has occupied the premises for 14 years or more, they are entitled to double the rateable value.

This compensation is designed to help the tenant relocate their business, as they are losing the right to renewal through no fault of their own.

Terminating a Lease That is Outside the Act

If the lease is outside the Landlord and Tenant Act 1954, the tenant does not have security of tenure. This means that when the lease term expires, the landlord is under no legal obligation to offer a renewal, and the tenant has no right to remain in the property unless a new agreement is reached.

In this case, the lease terms dictate how termination works. Typically, the landlord only needs to serve notice as specified in the lease agreement. If there is a contractual notice period, the landlord must comply with it.

Financial Obligations of the Landlord When Terminating an Outside-the-Act Lease

Unlike an inside-the-Act lease, when terminating an outside-the-Act lease, the landlord has no legal obligation to pay compensation to the tenant. However, in some cases:

• If the lease includes an agreed compensation clause, the landlord must honor it.
• If the lease was terminated unlawfully or in breach of contract, the tenant may pursue damages.

In most cases, landlords retain full control over the lease’s end without financial liabilities, making opting out of the Act a preferred strategy for many landlords who want maximum flexibility.

What If You Want to Renew the Lease on New Terms?

If you are willing to grant a new lease but under different conditions, your Section 25 Notice should outline the proposed changes, including:

• New Rent Amount – Based on market conditions, you may propose an increase in rent.
• Lease Duration – You can specify a shorter or longer lease term.
• Break Clauses – You may include terms allowing either party to end the lease early under specific conditions.
• Alterations to Tenant Responsibilities – This may involve changes to repair obligations, service charges, or permitted use of the premises.

Once served, the tenant can negotiate or challenge these new terms. If no agreement is reached, either party can apply to the County Court, where a judge will determine the final terms based on legal guidelines and market conditions.

Key Considerations for Landlords

1. Plan Ahead – Serving a Section 25 Notice too late may result in losing control over lease negotiations. Ensure you issue the notice within the legal timeframe.
2. Assess Market Conditions – Before proposing new terms, research local rental values and commercial property trends to justify rent adjustments.
3. Justify Lease Termination – If you are refusing renewal, ensure you have solid legal grounds and supporting evidence.
4. Seek Legal Advice – Any mistakes in the notice can lead to legal disputes. Consulting a solicitor helps ensure compliance with the law.
5. Prepare for Tenant Negotiation – Tenants may challenge new lease terms or fight an eviction notice. Be ready to negotiate or provide evidence in court if necessary.

Conclusion

A Section 25 Notice is an essential tool for commercial landlords who wish to either terminate a lease or renew it under revised terms.

If the lease is inside the Act, you must have valid legal grounds to terminate it and may be liable for compensation. If the lease is outside the Act, termination is simpler, with no legal right to renewal or compensation owed.

By serving the notice correctly, landlords can take control of lease negotiations and protect their interests, ensuring a smooth transition for the next phase of their commercial property strategy.