by Alana Holden and Graham McIntyre, Clarke Willmott
The Law Commission has published the first of two Consultation Papers considering how Part 2 of the Landlord and Tenant Act 1954 might be reformed and updated for a modern commercial leasehold market.
The paper focuses on whether business tenants should have security of tenure and, if so, how it should operate.
The 1954 Act has been a core part of the commercial leasehold market for 70 years, however its fitness for purpose has lately been called into question given the advances in the modern market.
The Consultation Paper therefore considers four possible models of security of tenure, and the pros and cons in respect of each suggested model:
No security of tenure - This model would involve the abolition of security of tenure and thus remove the right of renewal for business tenants.
Pros - landlords would have greater certainty about when the tenancy will end and, at the expiry of the term, they would be free to decide what happens to the property. They would no longer be required to follow the current statutory procedure and so costs and delays would potentially be reduced.
Cons – this model offers the least protection for tenants. Whether tenants could obtain a renewal tenancy would be governed by market forces and the agreement of the landlord. Tenants would face building up a business at a particular location and then potentially losing the goodwill they have established if a landlord refuses to allow them to renew their lease.
Contracting-In - This model would reverse the current default position of underlying security of tenure for qualifying business tenancies and require the parties to contract-in to security of tenure. If they did not, the lease would not be protected by the Act.
Pros – landlords and tenants would continue to have some flexibility with this model. A contracting-in model would remove the cost and time currently incurred when contracting out of the statutory provisions. Landlords may be in a stronger negotiating position as tenants would no longer have security of tenure by default.
Cons – tenants would be required to persuade landlords to opt-in and, if they were unable to do so, they would have less protection.
Contracting-Out - This model reflects the current position. If the parties to a qualifying business tenancy do not want the security of tenure protections to apply, they can use the statutory procedure to contract out of the Act before completion.
Pros – landlords and tenants would retain the current option to enter in tenancies either with or without security of tenure. This retains the default position of being contracted-in, therefore keeping greater protections for tenants.
Cons – time and costs will be incurred to opt out of the security of tenure scheme (if that is what the parties want). However, this is the current position. Landlords might be considered to be in a worse negotiating position than under the contracting-in model as tenancies will automatically benefit from security of tenure and positive steps would be needed to opt out.
Mandatory Security of Tenure - Under this model, all qualifying business tenancies would have security of tenure, and it would not be possible to contract out of the Act.
Pros – tenants would have the greatest level of protection under this model. Business tenancies would have security of tenure with no option to opt out. Granting new leases would also be simpler as it would not be necessary for the parties to consider whether or not the tenancy is to have security of tenure.
Cons – this model could weaken the landlord’s position as it would reduce their choices when tenancies come to an end. In some circumstances landlords may be reluctant to agree to grant a lease and may try to structure licences or non-consecutive six-month terms (which are outside security of tenure protection). This could dampen the investment market.
What Tenancies should be covered by the 1954 Act?
Currently, there are some tenancies that are excluded from the Act and the consultation considers whether there should be changes to the scope of the Act. Reforming the scope could avoid confusion where there are potentially overlapping regimes, or it may avoid tenancies being included where the security of tenure is unwanted or unnecessary.
However, there are also potential disadvantages as reforming the scope of the Act could make the position more complex and uncertain causing an increased risk of litigation, as well as reducing choice for both landlords and tenants.
Next steps
Any reform could have wide-ranging consequences for the commercial leasehold market; therefore, we would encourage any interested stakeholders to provide their views in the consultation. The Law Commission invites all interested parties to provide online responses to the paper by 19th February 2025.
If the majority of responses indicate an appetite for reform, the Law Commission expects its second Consultation Paper to get into more detail of the 1954 Act and consider how renewal should be dealt with in the future.
Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton. For more information visit www.clarkewillmott.com
Alana Holden is a solicitor in the property litigation team at Clarke Willmott. Graham McIntyre is a partner and head of the property litigation team.
