Modernising Business Tenancies – the end of security of tenure?
On 19 November 2024, the Law Commission published its phase 1 consultation paper: models of security of tenure (“the Initial Consultation”) on business tenancies and the statutory right to renew under the Landlord and Tenant Act 1954 (“the LTA 1954”). Landlords, business tenants and those letting commercial properties will want to familiarise themselves with the Law Commission’s Initial Consultation and may wish to respond and have their say in the future direction of travel.
What the Initial Consultation Indicates
The Initial Consultation concentrates on two areas of reform. The answers to these are to be considered before a further consultation which is intended to concentrate on more specific points for reform (“the Further Consultation”). The two areas in the Initial Consultation are:
- the degree of security of tenure to be available for commercial tenants under part II of the LTA 1954 in the future; and
- the scope of those having security of tenure under the LTA 1954.
Degree of Security of Tenure
The Initial Consultation offers 4 possible models for security of tenure. In summary, these are:
- Statutory security of tenure;
- Statutory security of tenure with the ability to opt out by agreement;
- No statutory security of tenure with the ability to opt in by agreement; and
- No security of tenure.
The Law Commission emphasises that whether or not any of these are chosen, there can still be changes to the existing LTA 1954. It also comments at paragraph 3.8 of the Initial Consultation that the uncertainty and unpredictability generated by a change to an alternative model are factors that could count against such a move and in favour of retaining the status quo.
Scope of Security of Tenure
The Initial Consultation seeks views on whether the coverage of the LTA 1954 should be narrowed to a smaller group of commercial tenants than at present. It draws examples of narrower scopes of security of tenure in other jurisdictions such as the Netherlands where hotels, retail, cafes, and campsites have security of tenure, and Scotland, where only shops are protected. The Law Commission suggests possible exclusions including ones based on:
- avoiding competition between the LTA 1954 and regulations and statute covering other regimes. This separation already exists for agricultural tenancies;
- the types of business run from premises;
- lease terms such as the length of tenure and level of rent; and
- the location of the premises.
What will be considered in the Further Consultation?
The Initial Consultation ends on 18 February 2025. Based on the results of this, the Further Consultation will be prepared. There are indications within the Initial Consultation of the points on which the Further Consultation may concentrate which the Law Commission is keen to resolve and also the potential direction of travel. These include:
- The forum in which LTA 1954 disputes are to be heard;
- Grounds of opposition under the LTA 1954 section 30(1)(f) (i.e. landlord intends to redevelop);
- Compensation on termination of leases;
- Rent determination;
- Registration gap problems;
- Encouraging landlords and tenants to agree contractual options to renew in leases;
- Increasing the efficiency and reducing cost and delay caused by the LTA 1954;
- Reducing the number of tenancies covered by the LTA 1954 on the basis of length of term.
We will consider each of these in further Insights on the possible effects of the consultations.
The Initial Consultation also refers to other aspects of commercial tenancies which the Law Commission is open to considering. These are major areas of landlord and tenant relationships. Reference is made to Authorised Guarantee Agreements (“AGAs”) and anti-avoidance provisions causing difficulties in intra-group transfers and other consensual agreements under the Landlord and Tenant (Covenants) Act 1995; the right of first refusal under the Landlord and Tenant Act 1987 in the context of mixed-use developments; and the terminal dilapidations regime. The Initial Consultation might be the start of a major overhaul of statutory and regulatory law for the commercial property industry.
Please contact Andrew Ross or your usual Charles Russell Speechlys contact if you have any queries.
