The Law Commission has issued an interim statement setting out the provisional conclusions drawn from its first consultation paper on the future of security of tenure for business tenancies under Part II of the Landlord and Tenant Act 1954 (the 1954 Act).
Broadly, sections 24-28 of the 1954 Act afford certain business tenants statutory rights to remain in occupation and renew their tenancy upon the expiry of the lease’s contractual term. Landlords may oppose these renewal rights by establishing certain statutory grounds of opposition, some of which entail payment of compensation to the tenant.
These protections are collectively known as “security of tenure” under the 1954 Act. It is possible for the landlord and tenant to agree to “contract out” of these provisions by following prescribed statutory procedures.
This Law Commission’s first consultation paper considered the scope of the 1954 Act and addressed key issues including:
Whether the current “contracting-out” model of security of tenure should be retained or replaced;
Which types of tenancy (by reference to characteristics such as use or size of the demise) should benefit from security of tenure under the 1954 Act; and
What duration of tenancy should benefit from security of tenure under the LTA 1954.
“Contracting-out” model
The Law Commission has provisionally concluded that the existing “contracting-out” model should be retained, noting that this approach received the broadest support from consultees, many of whom expressed concern about “unwarranted disruption to the commercial leasehold market” arising from any change of the current model.
Which types of tenancy should benefit from security of tenure?
The paper also acknowledged and considered that various types of tenancy (such as agricultural tenancies, mining leases, certain leases of licensed premises and leases conferring “code rights” to electronic communications operators) are excluded from acquiring security of tenure pursuant to section 43 of the 1954 Act.
The Law Commission has provisionally concluded (in keeping with the view of a majority of consultees) that the current position should remain.
What duration of tenancy should benefit from security of tenure under the 1954 Act
The consultation questioned whether the current approach, which excludes tenancies of up to six months from the protection afforded by the 1954 Act, is appropriate.
Here, the Law Commission state that: “While views are mixed, there was support for increasing the six-month threshold to give greater flexibility in the short-term lettings market. The Commission has provisionally concluded that the six-month threshold should be increased, and, in its second consultation paper, expects to consult on increasing the threshold to 2 years.”
Next steps: the direction of reform
The Law Commission’s provisional conclusions signal a pragmatic approach balancing market stability with the need for reform in certain areas. Current indications however are that core aspects and mechanics of the security of tenure framework are to be preserved.
The above recommendations will form the basis for the Law Commission’s second consultation paper (the timing of which is yet to be announced) which will consider the technical aspects entailed in reforming the 1954 Act. Landlords and tenants should keep apprised of developments, as procedural refinement (if not wholesale overhaul) of the current regime appears likely.
Laytons’ Real Estate department will continue to monitor and provide updates regarding the consultation on LTA 1954 reform. If you have any questions regarding the consultation and its consequences, please contact Harry O’Donnell at harry.odonnell@laytons.com or your usual contact in the Real Estate team at Laytons ETL.
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Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. Any questions or further information regarding the matters discussed in this publication can be directed to your regular contact at Laytons LLP or Laytons’ Real Estate team.