"Breaking news" for landlords: validity of a new tenancy request

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

In Fast Drinks v Cetyl [2017], the High Court was asked to consider whether a sub-tenant's section 26 request under the Landlord and Tenant Act 1954 (the 1954 Act) for a new tenancy starting on 1 July 2015, was valid, despite the fact that the contractual expiry date of its sublease was not until January 2016.

The rule in section 26(2) of the 1954 Act

The decision in this appeal turned on the High Court's analysis of section 26(2) of the 1954 Act.

Section 26(2) prevents a tenant from requesting a new lease starting on a date which is earlier than the date on which it agreed its current lease would expire, and states that:

"A tenant's request for a new tenancy shall be for a tenancy beginning with such date, not more than twelve nor less than six months after the making of the request as may be specified therein:

Provided that the said date shall not be earlier than the date on which apart from this Act the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit by the tenant."

Fast Drinks had a protected sub-tenancy

Fast Drinks had a protected sub-lease of a property, for a term expiring on 15 January 2016. A superior lease, for a term expiring on 16 January 2016, contained a break right in favour of Cetyl, the superior landlord of the property. Cetyl served notice to end the superior lease on 17 July 2014.

By exercising its break option, Cetyl brought to an end all interests granted out of its headlease and the contractual term of Fast Drinks' sublease therefore ended early on 17 July 2014. However, as Fast Drinks had a protected lease, its "statutory tenancy" continued under the protection of section 24 of the 1954 Act.

Fast Drinks wanted to remain in occupation of the property and served a section 26 request for a new tenancy starting on 1 July 2015.

Cetyl maintained that Fast Drinks had served an invalid notice

Cetyl argued that the section 26 request was invalid as section 26(2) of the 1954 Act said that the start date specified for the new tenancy could not be earlier than 16 January 2016 (being the day after the date that Fast Drinks' sub-lease would have come to an end either by effluxion of time or by notice to quit being given by Fast Drinks).

The decision

The High Court held that Fast Drinks' section 26 request was valid as the proviso in section 26(2) of the 1954 Act did not apply in this case. It distinguished Fast Drinks' request as a "post-term" request for a new tenancy, as it specified a start date which was after the date that the contractual term of its sublease had ended pursuant to Cetyl's break.

Key points for landlords

• If a landlord has a break option in its lease, it should insist that the lease contains a requirement that any sub-leases are contracted out of the provisions of the 1954 Act.
• If this does not happen, and a landlord finds itself wishing to exercise a break option against a protected tenant (and does not wish to grant the tenant a new lease), it should also take steps to serve an opposed section 25 notice on the tenant, making sure it can justify its opposition on one of the grounds set out in the 1954 Act.
• Alternatively, if a landlord who has exercised a break option receives a section 26 request from a protected tenant (and does not want to grant the tenant a new lease), then it should be aware of the need to serve a counter-notice opposing the grant of a new tenancy, again, making sure that it can justify its opposition on one of the grounds set out in the 1954 Act.