In November, the Law Commission published an initial consultation on the right to renew business tenancies under the Landlord and Tenant Act 1954. Options being considered include complete abolition, substantial reform or no change at all, with a follow-up consultation due in 2025.
Background
In 1954, commercial rental space was scarce due to wartime bomb damage. The Landlord and Tenant Act introduced a right for business tenants to renew their leases, or be compensated if the landlord wants the premises for its own occupation or redevelopment.
The Act was amended in 1969 and again in 2003, but the lettings market has changed a lot since then: the global financial crisis, the rise of internet shopping, the pandemic. It's no surprise that the Law Commission is now asking the industry if the Act still serves a worthwhile purpose.
Stage one consultation – the fundamentals
The Commission poses the fundamental question – keep the Act or not? Four options are set out:
- keep the 1954 Act, but abolish contracting out (so all tenancies would be protected)
- abolish the Act entirely
- keep the Act, but with contracting in instead of contracting out
- stick with the current position (keep the Act, with contracting out permitted).
The consultation document sets out detailed pros and cons for each option and looks at the familiar arguments. Landlords of protected tenants are denied the right to deal with their own buildings as they wish, and face expensive litigation if they want to redevelop. Unprotected tenants risk being uprooted from premises in which they have invested years of effort and money.
Keep the Act, but change the scope?
Currently the Act applies to all business premises, with a few exceptions (e.g. farming tenancies and fixed-term tenancies under six months).
The consultation asks whether the Act should be disapplied from certain other leases, depending on:
- duration of the tenancy;
- use of the premises, e.g. limit the Act to (say) retail or food & beverage only?
- other characteristics, such as floorspace, location or rent.
Might we see all tenancies under five years being automatically excluded? At present these are invariably contracted out, adding to the expense of the letting process for small tenants without giving them any extra rights.
What about other parts of the UK – and the world?
The Act applies to England and Wales only. The consultation looks in detail at how other countries deal with business tenancies. For example, there is a much more limited regime in Scotland, which essentially protects shops only. Northern Ireland has a similar setup to England, but with no contracting out. The Republic of Ireland also has similar legislation, but with simpler contracting out.
In New Zealand, business tenants have no protection and in the Netherlands and France, certain tenants have protection if their tenancy is for at least two years or three years respectively.
A second consultation paper next year
Once the outcome of this first consultation is clear, the Law Commission plans a follow-up consultation in 2025. This is expected to focus on possible changes to landlords' grounds for opposing a renewal, the terms of a renewal lease and streamlining the lengthy and expensive litigation process.
Details of the contracting out process will also be left to the second consultation. If the first consultation concludes we should keep the contracting out system, then the follow-up may consider replacing the formal notice and statutory declaration with a simpler procedure.
Many industry figures have commented that the Act requires significant and long overdue reform, but it is likely to be some time before any changes become law.