For some time now, "the powers that be" have been mooting the idea of ripping up one of the most influential pieces of property legislation on the statute book, the Landlord and Tenant Act 1954. The recent change of government doesn't seem to have slowed the process and the Law Commission's formal consultation has now commenced to decide the Act's future. At 118 pages long and focused on a range of possible alternatives to the existing regime, the consultation paper indicates that serious reform is very much on the government's agenda.
What's wrong with the Act?
The Act grants security of tenure to the vast majority of business tenancies automatically, meaning that business tenants have a right to renew their leases when they come to an end, provided they pay an open market rent. The Act therefore plays a pivotal role in the management of commercial property nationwide. However, the existing legislation is now 70 years old, so it is only right that it is reconsidered in a modern context. Indeed, with more and more business being conducted online, the need for security of tenure has likely reduced for many, so the future scope of the security of tenure regime is very much up for grabs.
One key criticism of the Act is that it arguably replaces commercial lease renewal negotiations with a highly tactical legal framework that can take years to get through. Others argue that the Act inhibits profitable enterprise by disincentivising landlords from letting their space, particularly where informal short-term lets are concerned. However, it is difficult to lay the blame only with the Act. In my experience, the most substantial and uncertain delays in the process are caused by the backlog at the courts. Proponents of the Act would also point out that parties can agree for it not to apply by using the "contracting out" process, although this may not be practical for lower value lettings where the parties don't really want solicitors involved.
Aims and challenges of the consultation
The Law Commission's consultation focuses on gathering views on both the model of security of tenure on offer, as well as its potential scope. Both aspects of the system could change dramatically. Indeed, total abolition of the system is very much on the table.
Models of security
When the Act was first brought in, it was not possible for parties to agree that it should not apply. This was later replaced with a right for parties to contract out of the Act, but only with the court's permission. Eventually the legislation was amended to the current system, which allows parties to contract out by themselves, provided adequate warnings have been given to the tenant before it commits itself. We therefore have quite a lot of practical experience in this jurisdiction telling us how different models work.
One new model proposed in the consultation would be an "opt-in" system, putting the onus on the parties to agree to be bound before any security of tenure will apply. However, with many parties looking for a simpler legal process, I have some doubts as to how popular such a system would ever turn out to be. An opt-in system might also embolden those landlords with stronger bargaining power to refuse security of tenure as standard.
Scope of the legislation
Turning to the scope of the rules, it is clear that similar regimes in other jurisdictions are much more targeted, focusing on businesses where goodwill is key, such as restaurants and shops. But while they are still likely to value security of tenure, the consultation forces us to consider whether other asset classes, such as offices, really need security of tenure in a post-pandemic world.
Just defining the scope of a business can be challenging from a legal perspective, particularly since businesses can be highly diversified and can adapt rapidly. A simpler test for whether security applies could just come down to the length of the given lease or a threshold on the level of rent paid. It could even be as simple as requiring a written lease to be in place. Setting parameters might be controversial, but the existing system, where the most minor enterprise without a written lease can potentially benefit from the Act, arguably leads to too much legal uncertainty. This uncertainty can benefit tenants but can also discourage landlords from allowing flexible trade on their land.
Would changes make a real difference?
Whatever the results of the consultation, it is difficult to see how changes to the Act will achieve the project's lofty aims. Legal conservatives may argue, with some justification, that the Act has been very successful and has withstood the test of time for a reason. If there is a problem with business leasing in this country, then perhaps we should be looking to solve other, more pressing problems. New legal procedures will not be immune to the same delays in the courts, and no amount of security of tenure will save retailers on the high streets from crippling business rates bills. Each party's bargaining power will no doubt continue to determine whether the tenant opts out of the protection afforded by the Act, and it is very hard to see how the Act could realistically further national "leveling up".
I remain optimistic that improvements can be made to the security of tenure regime in this country, all the more so since reading the paper published by the Law Commission. In a world where commercial leases are so much shorter than they once were, any changes that reduce the cost and time taken to conduct a lease renewal will be welcomed by the industry. However, we must still ask ourselves whether our sector's problems lie with this legislation, or elsewhere.
The first consultation will end on 19 February 2025 and responses can be submitted via the Law Commission's website. Depending on what responses are received, it is expected that this will be followed by a second consultation, focusing on any technical points that arise.
Want to hear more from us?