"I remain optimistic that improvements can be made to the security of tenure regime in this country, all the more so since reading the paper published by the Law Commission"
- Edward Cooper - Howard Kennedy LLP
On 19 November 2024, the Law Commission published its long-anticipated consultation paper on the rights of business tenants to renew their leases. 118 pages long and focusing on a range of possible alternatives to the existing regime, the consultation paper indicates that serious reform of the Landlord and Tenant Act 1954 (the Act) is very much on the government's agenda.
Since the Act applies to the vast majority of business tenancies automatically, it plays a pivotal role in the management of commercial property nationwide. I therefore have no doubt that both landlords and tenants, together with the professionals that advise them in the real estate sector, will welcome the chance to debate how our system can be improved.
The existing legislation is now 70 years old, so it is only right that it is reconsidered in a modern context. Indeed, with more and more business being conducted online, the need for security of tenure has likely reduced for many, so the future scope of the security of tenure regime is very much up for grabs.
Similar regimes in other jurisdictions appear to be much more targeted, focusing on businesses where goodwill is key, such as restaurants and shops. But while they are still likely to value security of tenure, the consultation forces us to consider whether other asset classes, such as offices, really need security of tenure in a post pandemic world.
Defining the scope of a business may be challenging from a legal perspective, particularly since businesses can be highly diversified and can adapt rapidly. A simpler test for whether security applies could just come down to the length of the lease or a threshold on the level of rent paid. It could even be as simple as requiring a written lease to be in place.
Setting parameters might be controversial but the existing system, where the most minor enterprise without a written lease can potentially benefit from the Act, arguably leads to too much legal uncertainty. This uncertainty can benefit tenants but can also discourage landlords from allowing flexible trade on their land.
Leaving scope aside, the statutory model for the security of tenure regime is also being reconsidered. When the Act was first brought in, it was not possible for parties to agree that it should not apply.
This was later replaced with a right for parties to "contract out" of the Act with the court's permission, but eventually, the legislation was amended to allow parties to contract out by themselves. We therefore have quite a lot of practical experience in this jurisdiction telling us how different models work.
One new model proposed would be an "opt-in" system, putting the onus on the parties to agree to be bound. However, with many parties looking for a simpler legal process, I have some doubts as to how popular such a system would ever turn out to be.
Whatever the results of the consultation, it is difficult to see how changes to the Act will achieve the project's lofty aims. Legal conservatives may argue, with some justification, that the Act has been very successful and has withstood the test of time for a reason. If there is a problem with business leasing in this country, then perhaps we should be looking to solve other, more pressing problems.
New legal procedures will not be immune to the same delays in the courts, and no amount of security of tenure will save retailers on the high streets from crippling business rates bills. Each party's bargaining power will no doubt continue to determine whether the tenant opts out of the protection afforded by the Act, and it is very hard to see how the Act could realistically further national "levelling up".
I remain optimistic that improvements can be made to the security of tenure regime in this country, all the more so since reading the paper published by the Law Commission. In a world where commercial leases are so much shorter than they once were, any changes that reduce the cost and time taken to conduct a lease renewal will be welcomed by the industry.
However, we must still ask ourselves whether our sector's problems lie with this legislation, or elsewhere.
The first consultation will end on 19 February 2025 and responses can be submitted via the Law Commission's website. Depending on what responses are received, it is expected that this will be followed by a second consultation, focusing on any technical points that arise.
