Designated Advisor’s Report (DAR) – Which report should you obtain where a lease for less than 7 years is protected by the Landlord and Tenant Act 1964?

Following the latest implementation of changes to legislation governing disposals of property caught by Part 7 of the Charities Act 2011 (s.117 – 129) we have received a number of enquiries regarding the relevant statutory requirements: Some enquiries arise from the amended legislation and some are pre-existing but occurring to surveyors and charities alike as they examine the new rules. One query that has been raised on a number of occasions relates to commercial leases which are protected by the Landlord and Tenant Act 1954 (the '1954 Act').

Landlord and Tenant Act 1954

The principle of security of tenure under the 1954 Act provides tenants with the automatic right to remain in possession of leasehold business premises after the end of the term set out in the tenancy agreement: This is so unless either party chooses to end the lease (in the case of the landlord such notice can only be given based on one of a number of prescribed grounds).  

One of the questions that has come up on several occasions is, whether or not a lease granted for a term of less than 7 years which is protected by the Landlord and Tenant Act 1954 is caught by the rules governing the disposal of charity property. The question arises because, upon expiry of the term set out in the lease itself, a protected lease will automatically continue on due to the statutory protection enjoyed creating a lease of more than 7 years.  

Charities Act 2022

Charities and advisers need to consider then how, in practice, such leases should be treated for the purpose of complying with the rules governing disposals of charity land, particularly those under s117 Charity Act 2011 regarding obtaining a report confirming the best value will be obtained. More specifically, this will affect the type of report needed under section 117. A lease of over 7 years will require a section 119 report under the normal procedure and a lease of less will require a s120 report under a more basic procedure.

The safe conclusion is that a lease of less than 7 years which is protected under the 1954 Act will need to be treated as a lease of more than 7 years for the purpose of the Charities Act because the statutory effect of the Act is that the lease continues on unless action is taken to prevent this. As such a s.119 report should be obtained before entering into such a lease and Part 7 should be followed.

Whilst not obvious, this is likely to be one of several subtle points that need to be considered when planning to dispose of charity property.

If you have any questions about how to obtain the correct report or manage a land disposal that you think may be caught by the security of tenure provisions, or indeed anything else, please don't hesitate to contact our Charity Property team.