There are a number of situations in which a business tenant can obtain compensation from its landlord when it vacates its property at the end of a tenancy.  Compensation is sometimes payable for disturbance, improvements and misrepresentation.  However, even though there is a statutory entitlement to compensation in some circumstances, the statutory rights can be excluded by agreement between the parties. 

Disturbance

A tenant has a statutory right to renew its lease provided that it qualifies as a “business tenant” as defined by the Landlord and Tenant Act 1954.  If a landlord refuses to renew the lease on a “no-fault” grounds (i.e. the tenant has not breached its covenants but the landlord perhaps wishes to occupy the premises themselves), compensation is payable.

In these circumstances the tenant is compensated for losing the value of its business premises.  Compensation is calculated by applying a multiplier to the rateable value of the property.  The multiplier is currently set at one unless the tenant has occupied the premises for 14 years or more, in which case the multiplier is two. 

Compensation is not payable if the tenant has been in occupation for less than five years. 

Improvements

There is potential for a “business tenant” to obtain compensation for improvements. Improvements that potentially carry an entitlement are those which “add to the letting value of the holding”.  Certain types of alterations will not fall within the definition of improvements, such as the tenant’s own fittings, or improvements made pursuant to an obligation for which the tenant receive valuable consideration.  A claim for compensation for improvements will only arise where a tenant served a valid notice of its intention to carry out the improvements in accordance with section 3 of the Landlord and Tenant Act 1927 and no objection was raised by the landlord. 

In order to claim compensation for improvements statutory procedural requirements must be followed: prescribed time limits and in the prescribed manner. 

The maximum amount of compensation available will be the net addition to the value of the holding as a whole as a direct consequence of the improvements or the reasonable cost of carrying out the improvement, whichever is the lesser sum. 

Misrepresentation

Where misrepresentation or concealment of material facts by a landlord leads either to a court being induced to refuse an order for a new tenancy, or to a tenant quitting the premises after not making a an application to the renew the tenancy, the law provides for compensation to be paid.  The amount of compensation awarded is decided by the court as being sufficient to compensate the tenant for the loss or damage sustained.