The Law Commission review of business tenancy security of tenure

27 Apr 2023

Part II of the Landlord and Tenant Act 1954 (the Act), in force for nearly 70 years, gives most business tenants the valuable right to renew tenancies which would otherwise come to an end, known as security of tenure. S.24 of the Act protects a tenant by providing that their existing tenancy will continue unless terminated in accordance with the Act. A tenant is given the right to renew through service of a statutory notice either from the landlord (s.25 notice) or the tenant (s.26 notice). A landlord can only oppose a new tenancy by establishing one or more of the seven grounds of opposition (s.30(1)(a) to (g), which are: (a) tenant’s failure to repair, (b) persistent delay in paying rent, (c) other substantial breaches by the tenant, (d) availability of suitable alternative accommodation, (e) the tenant is a sub-tenant of part of the property originally let and the landlord can obtain a better rent by re-letting the property as a whole, (f) the landlord’s intention to demolish or reconstruct the premises, and (g) the landlord’s intention to occupy the premises himself either for the purposes of his business or as a residence.) A tenant is entitled to statutory compensation from the landlord if grounds (e), (f), or (g) are made out.

The last significant update to the legislation came into force in 2004, when, amongst other things, it became easier to contract out of the Act’s provisions as the need to obtain a court order was removed. Contracting out of the Act’s provisions is attractive to a landlord. If a tenancy is contracted out of the Act’s provisions then the tenant has no right to stay in the premises at the end of the term, no right to compensation from the landlord, and no right to ask the Court to fix the rent or the terms of a new tenancy if the landlord offers one.

In March 2023 the Department for Levelling Up, Housing and Communities asked the Law Commission to review the Act’s provisions, as aspects of it are thought to be burdensome, unclear, out-of-date, causing unnecessary cost and delay, and they are getting in the way of modern commercial practices. The Law Commission’s terms of reference seek to create a legal framework that is widely used rather than opted out of, that is, not limiting the rights of parties to reach their own agreements, supporting the efficient use of space in high streets and town centres, and fostering a productive and beneficial commercial leasing relationship between landlords and tenants. The consultation paper is expected by late 2023.

So, is a substantial change on the horizon? I suspect not. What is expressly behind this review is the understandable motivation to fill emptying high street retail units, the real difficulty of which lies elsewhere, namely with ongoing pandemic recovery, the need for business rates reform, online competition, Brexit consequences, and other market forces and pressures. Landlords (and tenants) choosing to opt in to any reformed Act will not resolve these underlying structural issues.

Moreover, the focus of any reform or review is likely to seek to ensure that the overall balance between landlord and tenant remains fair, certain and can be maintained. Any significant alteration would likely affect such balance without extensive consultation and piloting. It does not appear, from the Law Commission’s remit, that the focus is on wholesale reform, rather that the existing structure and procedure should be simplified, to encourage those who would opt out to opt in and speed up the renewals process overall.

The Act has been and is frequently litigated, and there is a wealth of jurisprudence and commentary on its provisions seeking to give clarity, but often revealing inconsistencies and uncertainty. Wholesale reform of the Act could address this but seems unlikely. While not perfect, the Act continues to work well overall, and in general provides a fair balance between landlords and tenants, even if its operation could be streamlined or made more user friendly.

The introduction and regulation of model or standardised business tenancies with model or standardised terms that parties could choose from as part of a menu/suite of options and any standardised fast-track renewals procedure, perhaps with fixed costs, could, in theory at least, cut through many of the complications and uncertainties except in the largest, most complicated and most valuable of cases. It would be a departure from the principle that commercial parties should have the freedom to contract as they wish, but a voluntary scheme and procedure for straightforward small/medium size holdings might be attractive to those who would otherwise want to contract out of the Act or not enter into any tenancy.

Where the motivation is to encourage occupancy rates in high street and other retail units to rise, and for those new occupants to benefit from/enjoy something other than a say tenancy at will or contracted out fixed term tenancy, thought might be given to amending those business tenancies to which the Act applies (say by lengthening the 6 month fixed term period required for the Act to apply or perhaps removing periodic tenancies from its remit, to discourage landlords from pressuring tenants to enter into contracted out agreements at all). Alternatively, there could be some form of model “introductory” or “fixed” model tenancy regime, implied or otherwise, to encourage occupation at the lowest cost to both parties but which could or would be renewed or later converted to an Act tenancy after a certain period or some trigger.

Provision for incorporating pandemic/green lease and/or more certainty regarding modernising terms would be an update, but nothing that the Act in its current iteration or market could not do or is not doing itself.

A relatively easy improvement to make would be to codify the existing regime more, by incorporating the effect of significant jurisprudence directly into the Act itself, and where there are conflicting authorities to provide clarity where possible. This would assist landlords and tenants, whether represented or not, to understand better its provisions, reduce confusion and the potential for disputes, even if it would not remove the need for legal or surveyor representatives. At the very least it would (hopefully) simplify procedure, reduce costs, and lessen the margin for error or uncertainty.

Another relatively easy improvement would be to tackle the provisions for notices and procedure generally. While in theory the structure of the Act’s provisions seems straightforward, the detail behind the provisions is complicated and often requires specialist advice and assistance to both landlords and tenants, particularly with regard to exchanging notices and commencing proceedings. The Act can and often does provide traps for the unwary or careless. A stated purposive approach could be adopted throughout, discouraging reliance on opportunistic or technical defects/errors, with defined periods introduced allowing for and encouraging co-operation and agreement, with the presumption being towards agreement and/or that notices or steps taken are valid unless shown otherwise, with appropriate and efficient mechanisms in the case of ambiguity to obtain further information, clarification or amendment where possible. Timelines/deadlines for notices/responses could also be reconsidered, taking into account modern communication and working practices to shorten deadlines but also provide flexibility to agree or seek reasonable extensions if required, again discouraging opportunistic/strategic practice.

In the meantime, landlords and tenants, and their representatives, should look out for the consultation and proposals.

Article by Carl Brewin


Carl Brewin

Carl Brewin

Call: 2006


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