The Infamous Security of Tenure Provisions
If you have ever dealt with land arrangements at your school, you have probably come across the term ‘security of tenure’.
This term applies to commercial leases which are usually the types of leases or land arrangements most educational sites use.
A firm understanding of what security of tenure is and how it applies to school land is vital when dealing with any sort of land arrangements. Mistakes or misunderstandings around these provisions can be both timely and costly.
This briefing note aims to provide some background on this often-complex area of law.
What is Security of Tenure?
Under the Landlord and Tenant Act 1954 (the “LTA 1954”), most business tenants have a statutory right to stay in their premises after their lease expires. This means that when a fixed term commercial lease comes to an end the tenant doesn’t necessarily have to pack up and leave.
Instead the tenant can request the landlord to enter into a new lease on similar terms as the existing lease. The landlord can only refuse this renewal on certain limited statutory grounds.
This protection is what is known as ‘security of tenure’ and applies automatically unless both parties ‘contract out’ of the LTA 1954 before the lease is signed.
Tenants with security of tenure cannot be evicted without proper legal procedures being followed, which may also include claims for compensation or even resettlement.
Why is it Important? From the Perspective of a Tenant
Knowing whether your lease has been contracted in or contracted out of the security of tenure is pivotal for planning your next steps.
As a tenant if your lease has been contracted in i.e. is within the security of tenure provisions, you are likely to have a stronger position when it comes to negotiating terms of a new lease, particularly if finding alternative premises would be difficult or costly. There is business continuity in that you can continue with operating from the same premises and are likely to save on costs of refitting or refurbishing a new premises.
What should be considered however is that the timeframes for renegotiating terms under the LTA 1954 can be lengthy and fraught with disputes around matters like rent or other terms. It is complex to exit a lease that is contracted in, and not uncommon for issues to lead to frayed relationships between the landlord and tenant.
Why is it Important? From the Perspective of a Landlord
Where a tenant has obtained security of tenure rights the landlord may then be restricted in its ability to repossess the property or change the use unless statutory grounds apply. In any event the legal and procedural steps to regain possession of the property are complicated and costly.
The upside for the landlord however is continuity, stability, rental security which may command higher capital value due to having a longstanding tenant.
When Can a Landlord Refuse to Renew Under the LTA 1954?
Under section 30 of the LTA 1954 a landlord can only oppose a lease renewal on certain grounds. These include briefly:
- Tenant’s failure to maintain or repair the property (taking into account the provisions of the agreement itself)
- Persistent delay in paying rent
- The landlord intends to redevelop the premises
- The landlord intends to occupy the property itself
Each of these grounds requires evidence, and in most cases, a genuine and funded intention to carry out the proposed works or occupation. That can be a very high bar to clear.
Contracting Out of the Act
Landlords who wish to avoid tenants from securing tenure must ensure the lease is contracted out of the LTA 1954. This would usually involve:
- Serving a formal notice on the tenant or tenant’s solicitor (if authority has been provided)
- The tenant making a statutory or simple declaration (depending on the timeframe of the notice being served and intended date for completion)
- Inclusion of specific wording in the lease
Failing to correctly comply with these steps could mean that the tenant automatically obtains security of tenure rights which can affect the landlord’s long-term plans for the site.
Why Schools and Academy Trusts Need to Pay Extra Attention
For schools and academies, the LTA 1954 presents some unique challenges. Trusts may lease out surplus property or host third party operators such as nurseries, sports clubs or other community providers. Often, these arrangements are casual or intended to be temporary but without property legal documentation and contracting out where appropriate, these tenants may inadvertently acquire security of tenure rights.
Obligations under the Academies Act 2010 and the Schools Standard Framework Act 1998
Both the Academies Act 2010 and the SSFA 1998 place clear duties on trusts and local authorities in relation to the use of land. Many academy trusts hold land on special trusts or under charitable conditions that require the land to be used solely for educational purposes. Leasing part of a school site to a commercial tenant can therefore:
- Breach the permitted use or require the need for Secretary of State consent to the disposal
- Create practical difficulties if the tenant’s operations conflict with the school’s safeguarding or redevelopment plans
- Lead to disputes or reputational damage if tenants cannot be easily removed, particularly where they may have obtained security of tenure rights.
Know who owns what
Many schools don’t often have a clear view of the structure of ownership of their land. School sites may be made up of land owned by different parties for example Diocesan Trustees, Local Authorities or the Secretary of State itself.
Without fully understanding the ownership structures there is a real risk that granting occupancy to a third party, whether by licence, lease or another type of arrangement over land that is not within the legal control of the school could inadvertently lead to the school breaching its obligations and covenants. Before entering into any property arrangement, schools must consider:
- Carrying out detailed title investigations;
- Confirming who owns and has an interest in the land;
- How the school operates from the land; and
- Seeking legal advice to avoid unintentionally granting security of tenure.
Practical Tips
Schools and academy trusts need to practically consider what type of agreement is appropriate for the circumstances at hand.
If you genuinely want a short term or flexible agreement, a licence to occupy may be better than a lease, but only if it reflects the true nature of the occupation. A poorly drafted licence that behaves like a lease could still trigger rights under the LTA 1954. In such cases, it would be prudent to contract out of the provisions ahead of completing any agreement.
Keep records! Schools and academy trusts often deal with property arrangements in a fairly informal manner due to various pressures around budgets and regulations. A central register or folder should be kept with details of land ownership, rent renewal dates, lease expiries, copy of the documents, contact details, copy of notices etc. This is essential in managing the site arrangements effectively and efficiently.
It is always best to get legal advice especially where third party occupation affects school use, long term development plans or safeguarding. Professional advice can prevent costly issues later down the line.
How we can help
Security of tenure under the LTA 1954 is an arguably, well-intentioned piece of legislation designed to protect businesses from sudden eviction and provide commercial stability, but for schools and academy trusts it can turn into an expensive and restrictive surprise – especially when dealing with third party occupiers.
With the right knowledge and processes, schools can manage these risks. Awareness is the first step. The second is careful legal structuring of all occupational arrangements – big or small because when it comes to land ignorance isn’t bliss, it can be a liability.
Our specialist property team in our Education Department are familiar with the regulatory requirements and can advise on the implications of these.
Further Information
For further information, please contact:
- Andrea Squires, Head of Department and Partner, on 0207 593 5039 or asquires@wslaw.co.uk.
- Sonia Din, Senior Associate, on 020 7593 0326 or sdin@wslaw.co.uk
- Zahraa Ilmass, Senior Associate, on 0203 735 1939 or zilmass@wslaw.co.uk
Treatment of Deficit on Academy Conversion
General Position
If a maintained school has a deficit before academy conversion this means the school is operating at a financial loss as its spending exceeds its income.
In light of the DfE guidance issued in January 2024 regarding surplus and deficit balances an Academy Trust will need to consider how the deficit will be treated on conversion.
If the school is converting voluntarily (i.e. there is no directive academy order/sponsor) the LA is compensated by the DfE for the pre-conversion deficit balance. The DfE reimburses the LA and recovers the money back from the academy through GAG reduction. The DfE has to ensure the amount due is a true reflection of what is owed and will only pay once the amount is agreed between the parties.
The Academy Trust essentially inherit the financial impact of the deficit as the funding is reduced accordingly over time.
If a school is concerned that the deficit may prevent conversion, but the school is not eligible for intervention or to be treated as a sponsored academy it is open to the LA to the agree to absorb part or all of the deficit rather than insist on it being repaid by the school.
For sponsored conversion the deficit will remain with the LA. The LA can apply to charge this cost to its Dedicated Schools Grant (DSG) but this is a matter for the LA and not the Academy Trust.
Before proceeding with conversion the Academy Trust should:
- verify the actual deficit figure with the LA and ensure this is agreed and documented;
- obtain confirmation from the DfE as to whether the conversion will involve reduction of the GAG;
- consider the financial impact of the expected GAG reduction to assess how it will impact after conversion in terms of cash flow and operational financial planning;
- clarify the timeline and repayment terms for the GAG reduction to see if this will be phased over time;
- check if there is scope to negotiate any support or mitigation measures with the DfE; and
- document the understanding via the CTA.
To summarise, the deficit may not transfer in accounting terms, but it will likely result in an equivalent financial impact through GAG reduction. It is imperative that the Trust enter a conversion with a full understanding of the deficit, how it will be recovered and how can this be planned for operationally.
Certain Exceptions
If a school is not funded via GAG (for example as is the case for many residential special schools who operate a fee-based model) the above may not apply as there is no GAG to reduce.
The DfE, LA and Academy Trust will need to agree on how the deficit is handled. Since there is no GAG to reduce alternative mechanisms may need to be agreed (i.e. repayment or bespoke terms).
In such cases the deficit may then remain with the LA or some bespoke terms may be agreed between the parties. It is best for the Academy Trust to seek clarity as early as possible in the process, request written confirmation from the LA and DfE regarding how pre-conversion deficit will be treated especially in the absence of GAG funding and then ensure this is fully documented and clarified in the CTA how the liabilities and transitional financial support will be handled.