The Law Commission has said that there should be no change to "security of tenure", the model that governs the legal relationship between landlord and tenant in the UK. It believes that the existing contracting-out model should remain, a decision that directly contradicts lobbying from the British Property Federation.
Part 2 of the Landlord and Tenant Act 1954 gives business tenants the right to renew their tenancies when they would otherwise come to an end. This enables businesses to remain in their premises with the legal right to a new tenancy often referred to as “security of tenure”.
Most business tenants automatically have the right to renew under the Act unless, before any lease is granted, they agree with their landlord that the right to renew should not apply. They can do that by a process known as “contracting out”.
The Law Commission launched its much-anticipated consultation on the Act to ensure it works for the modern commercial leasehold market in November, saying there had been no significant updates for 20 years despite dramatically changed market conditions.
The BPF, the UK real estate lobby body that, in particular, represents landlords, argued that security of tenure should not be the default position for commercial leases. It is instead recommending moving from an "opt-out" to "opt-in" approach and excluding leases of five years or less from security of tenure. A review of its response can be read here.
In an interim update on its consultation today, the Law Commission, the independent body that keeps the law of England and Wales under review and recommends reforms, has provided the following provisional conclusions:
- There should be no change to the model of security of tenure. The existing contracting-out model should remain.
- The threshold for excluding tenancies from the scope of the Act based on the tenancy’s duration should be increased from six months. In its second consultation paper, its expects to consult on increasing the threshold to two years.
- Otherwise, there should be no change to the Act’s scope.
It will publish a compilation of the responses it received to its first consultation paper and will also publish a second consultation paper focusing on the technical detail of how the 1954 Act might be reformed, in light of those provisional conclusions.
The British Property Federation's policy director, Ion Fletcher, said: “This is a disappointingly modest proposal and a missed opportunity to streamline commercial leasing law and practice. The BPF called for a shift to a contracting-in approach rather than contracting-out of the Act’s provisions to reduce the friction and burdens associated with agreeing new tenancies, and for longer minimum tenancies before the Act applied. We continue to believe this would have been the right reform.
“Nonetheless, we have long highlighted the urgent need to modernise the existing contracting-out model. As we highlighted in our consultation response, the process for opting leases out of the Act is unnecessarily time consuming while lease renewals inside the Act can also be lengthy, costly and burdensome for the courts. The current approach hampers investment because it makes it harder to redevelop buildings and also to 'green' them.
“The true measure of the success of '54 Act reform will be whether it addresses the many other day-to-day problems that owners and occupiers experience with the detail of the Act. This is vital to support a dynamic commercial property market, investment and wider economic and environmental goals.”
The Commercial Tenants Association, which was set up around 15 years ago to offer free advice to commercial tenants, has lobbied for security of tenure to be retained as the "opt-out" default position for commercial leases in the UK.
It said in a statement: “We agree with the Law Commission's interim statement following the Commercial Tenants Association report to the Law Commission earlier this year, whereby we argued that there should be no change to the model of security of tenure. The Law Commission has stated that 'there should be no change to the model of security of tenure and that the existing contracting out model should remain'. We at the Commercial Tenants Association look forward to reading the compilation of responses, and we will be preparing a second report for the next stage of consultation.“
(Updated on 5 June to add BPF statement.).