All commercial property leases are written within the scope of the Landlord and Tenant Act 1954.
As a result, most businesses have a right to acquire a new lease for their premises after the existing one has run out – which is known as security of tenure. And the landlord can only refuse the renewal if at least one of seven ‘statutory grounds’ applies.
The problem is… the Act is now over half a century old.
Initially put in place in 1954, it was designed to promote the economy and provide a secure basis for businesses to grow post-war. But unsurprisingly, things have changed a little in the last 70 years.
For a start, the birth of the internet in the 80s completely revolutionised shopping. Add in a pandemic – which accelerated the ‘stay at home’ trend – and an ever-increasing focus on energy efficiency, and it’s easy to understand why the 1954 Act may need tweaking.
In fact, it’s been described as ‘inflexible, bureaucratic and out of date’ – causing extra costs and delays for both tenants and landlords and preventing units from being occupied.
If high street shops and commercial centres are to survive, businesses – and the commercial leases under which they operate – need to change. And thanks to a review, recently announced by the Law Commission of England and Wales, that change could be just around the corner.
A modern update of the Landlord and Tenant Act 1954
Commissioned by the Department for Levelling Up, Housing and Communities (DLUHC) and forming part of the Government’s new Anti-Social Behaviour Action Plan, the review will explore issues with the existing law – with a view to developing a new modern legal framework.
Here we take a look at some of these issues, and how the review could help.
- A tendency to ‘contract out’
Today, many landlords and tenants entering into a commercial property lease decide to exclude (or ‘contract out’ of) the security of tenure protection. But that certainly isn’t an easy process.
‘Contracting out’ was simplified in 2003 by removing the need for court involvement. However, it’s still a very convoluted procedure – in which the landlord must serve notice and the tenant must sign statutory declarations, witnessed by an independent solicitor or commissioner for oaths.
To resolve this issue, the review may consider switching the emphasis.
Rather than ‘contracting out’, instead, landlords and tenants may be asked to ‘opt into’ the security of tenure. This would remove the need for statutory declarations, significantly speed up the leasing process and (hopefully) improving the resilience of high street shops and commercial centres.
- Difficulty promoting ‘net zero’ leases
Many landlords believe the 1954 Act does not align with the government’s ‘net zero’ objective.
ESG (Environmental, Social and Governance) targets have become an increasingly prominent focus for the property industry. And to meet the new Minimum Energy Efficiency Standards (MEES), many commercial properties require upgrades. Yet security of tenure can make this very difficult.
A landlord can currently appeal a lease renewal if they intend to demolish or reconstruct a property. But not if they require access to the building to make energy-efficient improvements.
To settle this problem, the review may consider widening the landlord’s grounds for opposition. Or, at the very least, giving the court the power to grant a commercial lease renewal – whilst also requiring the tenant to provide access for any upgrades the landlord deems necessary.
- Limited rent arrangements
Turnover rents are commonplace nowadays, especially following the pandemic.
By paying the landlord a percentage of their turnover, rather than a fixed monthly or annual sum, both parties share the risk and reward of the business – therefore improving its overall resilience.
However, this type of agreement does not sit well with the provisions of the 1954 Act. As it currently stands, courts do not have the express statutory power to order a turnover rent in protected lease renewals – which is likely one of the main reasons that people choose to ‘contract out’.
To help avoid this situation – and encourage landlords and tenants to use the security of tenure framework – the review may introduce a statutory recognition of turnover rents. Whereby, the updated Act grants jurisdiction for courts to order this type of rent in compelling cases.
- Lengthy court proceedings
At present, courts are largely involved in security of tenure lease renewals and the disputes that arise from these. And as such, commercial leasing can be a highly lengthy and frustrating process. In fact, in a recent survey, the courts were cited as the main cause of delays in renewal negotiations.
To streamline this process and reduce the number of delays, the review might consider alternatives to court proceedings – such as a pre-action protocol, first-tier tribunal or even arbitration.
Need help with ‘security of tenure’ issues?
This upcoming review should be a huge positive step for the sector.
Almost 20 years since the last, it’s certainly overdue.
For far too long, landlords and their tenants have been held back by an outdated legislative framework that is out of sync with the realities of today. And it’s hoped the anticipated review will remove some of the barriers that inhibit growth, and foster a more productive and beneficial commercial leasing relationship for all parties involved.
However, things aren’t going to improve overnight. The Law Commission aims to publish a consultation paper by December 2023 – and any changes decided upon will likely take a while longer to implement. So, as a landlord, what can you do in the meantime?
If you’re struggling with a commercial lease renewal due to the 1954 Act, or are wondering whether to contract out of ‘security of tenure’ protection in a new lease, it’s a good idea to seek independent legal advice. And here at St Helens Law, we can help.
Our commercial property solicitors have recognised expertise in this area, including a thorough understanding of this aspect of the Landlord and Tenant Act 1954 – and can assist with the full process of drafting a commercial lease that works for you and your prospective tenants.
We also offer a fixed fee ‘reviewing and advising’ service for commercial property documents (e.g. leases, tenancy agreements etc.) and can offer guidance on many landlord and tenant disputes.
An initial consultation with our commercial property team is available free of charge. So why not contact us today? You can either fill out our online enquiry form and we’ll respond as soon as possible with some suggested times and dates. Or if you have any questions, please feel free to call us on 01744 742360. We’re always happy to help.