For almost seventy years, the Landlord and Tenant Act 1954 has been fundamental to the relationship between commercial landlords and tenants in England and Wales. As businesses and property markets evolve, the Law Commission is now asking: is it still fit for purpose?
In this article, we will delve into the current law, explore why the Law Commission is reviewing it, and discuss potential changes on the horizon.
The current law: a brief overview
The Landlord and Tenant Act 1954 grants most business tenants an automatic right to renew their lease upon its expiration. This is known as “security of tenure.” Here’s how it works in practice:
- Automatic right to renew: Upon the expiration of a lease, the tenant typically retains the right to remain and negotiate a new lease.
- Exclusions and contracting out: Landlords and tenants can mutually agree to “contract out” of this right before the lease starts. This means the tenant will not have the automatic right to renew when the lease expires.
- Involving Court’s: If the landlord and tenant cannot reach an agreement regarding the lease, they can ask the Court to make the decision. However, the landlord has the right to refuse renewal in certain circumstances, such as plans to redevelop the property.
- Coverage of the Act: The law covers most commercial leases but excludes specific types, like tenancies of six months or less or agricultural leases.
Problems with the existing law
While the 1954 Act has provided stability for businesses, it’s also showing its age. See below some of the primary concerns:
- Outdated assumptions: The Act was established during a period when long-term leases were standard. In today’s market, short-term and flexible leasing arrangements are much more common, making some provisions less relevant.
- Complexity: The regulations surrounding contracting out and Court applications can be intricate and costly for both landlords and tenants. Tenants must follow specific legal practices to claim renewal rights, and failure to comply can result in the loss of these rights. On the other hand for landlords, they face procedural hurdles if they want to oppose a renewal such as proving redevelopment plans which often lead to disputes and can be expensive.
- Imbalance: Critics argue that the law’s emphasis on tenant protection doesn’t always account for the legitimate interests of landlords, such as the need to redevelop or when selling their properties.
- Unclear coverage: The Act doesn’t encompass all types of commercial arrangements, and the exclusions can lead to potential disputes. For instance, short-term lets of under six months may fall outside the Act’s scope, but complications can arise when such arrangements are repeatedly renewed.
What are the Law Commission’s proposals?
The Law Commission’s consultation seeks to modernise the law, making it more straightforward and equitable for all involved. In their review, they are considering four key points:
- Maintain the current system with modifications: The automatic right to renew would be retained, but with updates to reflect contemporary leasing practices.
- Eliminate the right to renew: This drastic option would completely remove tenants’ automatic renewal rights.
- Opt-in system: Tenants would only have renewal rights if they explicitly agree to them with the landlord at the time of signing the lease.
- Mandatory security of tenure: All tenants would automatically have the right to renew, with no possibility to opt out.
The consultation is also looking at:
- Whether the types of leases protected by the Act should be redefined.
- How to make the renewal process less complicated and costly.
Why is this important?
For tenants, the right to renew offers security and stability, allowing them to plan for the future. For landlords, having flexibility is vital to managing their properties and maximising their value. Having the right balance is critical to ensuring a thriving commercial property market that is mutually beneficial to both landlords and tenants.
How to get involved
The consultation is open until 19 February 2025, and the Law Commission is eager to hear from people impacted by these laws – whether you’re a business owner, landlord, or advisor. This is your opportunity to assist in shaping the future of commercial leasing.
The Landlord and Tenant Act 1954 has served businesses and landlords for many years, but it’s clear that a refresh is necessary. Whether the law is tweaked or overhauled, the goal is a system that reflects today’s realities while promoting positive landlord-tenant relationships. Now is the time to have your say on what that future should look like.
How can we help?
Will Henson is a Partner in our Commercial Property team.
For further advice on the above subjects, please contact us on 0330 111 3131 or fill out our online contact form.