GOODWILL
Any tenant is entitled to the benefit of the Act so long as certain conditions are fulfilled. The first essential is that a tenant must be carrying on a trade or business at the premises, and it is expressly provided that the carrying on of a profession is not enough. The Act does not apply either where the business carried on is that of subletting parts of the premises as residential flats - whether or not meals or some other services are also provided by the tenant; nor does the Act apply to a person who is a tenant as the holder of some office, appointment, or employment from his landlord. Where, however, the tenancy began after March 25, 1928, the Act will apply even to tenancies of this kind unless the tenancy agreement is in writing and states clearly the purpose for which the tenancy is created. In all other cases it is immaterial whether your tenancy agreement was made before or after the date when the Act came into force ( March 25, 1928 ).
In order to protect tenants still further the Act says that it is not possible for a tenancy agreement to deprive
the tenant of the benefit of his rights under the Act unless he is given " adequate consideration " - that is, something or a sum of money equal in value to the rights he is giving up. It
has been the practice in my experience for landlords who do not wish their tenants to have the right to goodwill
merely to state in the tenancy agreement that the tenant gives up the right for "adequate consideration,"
meaning that the value of the right to compensation for goodwill has been taken into account in fixing the rent.
In other words, the tenant would have had to pay a higher rent had he not given up his right to compensation.
COMPENSATION
Before the tenant can claim compensation he must prove that by reason of the carrying on by him, or by some persons from whom he took over the lease, of some trade or business at the premises for a period of not less than five years, goodwill has attached to the premises, with the result that they can be let at a higher rent than previously. The test is the difference between the rent with the goodwill and without it. The tenant receives a lump sum which, if necessary, is fixed by the local County Court. At first sight this seems to give the tenant a considerable advantage, but for several reasons he is by no means in so favourable a position as you might think. In the first place, what has got to be considered is not what the tenant loses by leaving the premises, but what the landlord gains, and this is a very different matter.
If the landlord intends to demolish the premises to use them for a different and more profitable purpose he will
be getting little or no benefit from any goodwill created by the tenant, and little or no compensation will be
payable. No claim can be made until the tenancy comes to an end. If the tenancy is ended by the landlord giving
the tenant notice, the tenant must make his claim within a month of the notice, and where the tenancy comes to
an end without notice the claim must be made not more than three years nor less than one year from the end. Under
no circumstances can a tenant who himself gives notice claim compensation.
When the lease is terminated the landlord may successfully object to the grant of a new tenancy because of a firm intention to demolish the premises or develop or occupy the premises himself and, as a result, you may fail to obtain a new tenancy or withdraw your application for a new tenancy. Due to the loss of the goodwill that you have built up and the costs of relocation. you may then be entitled to compensation.
The amount of compensation depends on how long
the tenant's business has been carried on at the premises
- for less than 14 years, the tenant receives a sum equal to the appropriate multiplier times the rateable value
of the premises occupied at the end of the tenancy;
- for 14 years or more, he receives the appropriate multiplier times twice the rateable value of the premises occupied
at the end of the tenancy.
Since 1 April 1990 the appropriate
multiplier has been prescribed by the Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990 (SI 1990
No 363). This Order prescribes a multiplier of:
1 - where the date for determining the rateable value is on or after 1 April 1990; ( if part
of the property is domestic (as defined in section 66 of the Local Government Finance Act 1988), the domestic part
will be disregarded in determining the rateable value of the holding, but if the tenant occupies on the date a
section 25 or section 26(6) notice under the 1954 Act is served, the whole or any part of the domestic property,
he will also be entitled to a sum equal to his reasonable expenses in removing from the domestic property).
3- if the landlord, notice was served before 1 April 1990, and so the date for determining the rateable value is before that date, but the tenant quits on or after 1 April 1990.
8 - for some tenancies existing or contracted for, before 1 April 1990 where the tenant has opted for compensation to be based on the rateable value of the holding on 31 March 1990 during a transitional period ( i.e. where the landlord's section 25 or section 26(6) notice under the 1954 Act is given after 31 March 1990 but before 1 April 2000 ), as set out in Schedule 7 to the Local Government and Housing Act 1989. The tenant must opt not less than two nor more than four months after the landlord's notice or after he requested a new tenancy.
The amount of compensation is calculated by multiplying the rateable value of the holding by the appopriate multiplier (usually one) but this multiplier may be doubled if the same business tenant has been in occupation for 14 years or more.. The rateable value for these purposes is the rateable value appearing in the valuation list at the date when the landlord served the s.25 notice or the tenant served a request for a new tenancy. The appropriate multiplier is fixed by the Secretary of State .
PROFESSIONAL ADVICE
MAY BE NEEDED ON WHICH OF THE THREE MULTIPLIERS IS THE APPROPRIATE ONE IN INDIVIDUAL CASES AND, FOR EXAMPLE, CONCERNING
ANY QUERIES ABOUT THE RATEABLE VALUE
The rateable value is defined in Part
II of the 1954 Act, as amended by Schedule 7 to the local Government and Housing Act 1989.
THE TENANT MAY ALSO
BE ENTITLED TO COMPENSATION UNDER OTHER ACTS. IF IN DOUBT SEEK PROFESSIONAL ADVICE.
COMPENSATION FOR IMPROVEMENTS
When the tenant of premises used for trade cannot remove a fixture he may be able to obtain compensation from the landlord for improving the premises under an Act of Parliament called the landlord and Tenant Act, passed in 1927 ( as amended by the 1954 Act ), although the rights given to a tenant by this Act are by no means as valuable as they appear at first sight. In the first place, please remember that a tenant is not entitled to make any alteration to a house or shop without the landlord's permission. If he does, not only is he entitled to no compensation, but he may be compelled to undo what he has done. It makes no difference that the alteration really improves the premises. If he wishes to obtain compensation for an improvement he must follow carefully the requirements of the Act.
CONSULT A SOLICITOR
These requirements are complicated, and you should, if you wish to claim compensation for improvements, always consult a solicitor. Please remember, anyway, that it is unwise to start any improvement without getting the consent of your landlord and that you will never get compensation for improvements unless your premises are used for business, trade or professional purposes.
