Compensation when a business tenancy ends

When compensation is payable

Section 37 pays the tenant for losing a business location through no fault of its own. It is triggered where the landlord's section 25 notice or section 26 counter-notice relied only on the no-fault grounds — (e) uneconomic sub-letting, (f) redevelopment or (g) owner occupation — and the tenant then leaves, either because the court refuses a new tenancy or because the tenant does not apply.

If the landlord relied on any of the fault grounds — disrepair, arrears, other breaches or the offer of suitable alternative accommodation — no compensation is due, even if the tenancy ends. That is why the grounds stated in the notice matter financially as well as tactically.

How much is paid

Compensation is a multiple of the rateable value of the holding at the date of the landlord's notice, not a valuation of the tenant's actual losses. The basic figure is one times rateable value. It doubles where the premises have been occupied for the purposes of the same business for at least 14 years before the termination date, counting occupation by the tenant and by predecessors in that business.

The 14-year test looks at continuity of business occupation, not continuity of a single lease, so a succession of leases or an assignment of the business can still qualify.

• Under 14 years: 1 × rateable value of the holding
• 14 years or more of the same business: 2 × rateable value
• Rateable value taken at the date of the section 25 notice or section 26 counter-notice
• Disputes on rateable value are determined by the Valuation Office

Excluding or reducing compensation

An agreement excluding or reducing section 37 compensation is void where the tenant and its predecessors have been in occupation for the purposes of the business for five years or more at the date the tenancy ends. Below five years, an exclusion clause can bite — a common feature of short contracted-out lettings.

Payment is due on quitting the holding. A tenant who wants both compensation and time should keep the tenancy alive under section 24 while the position is resolved, because the statutory continuation preserves the right rather than defeating it.