Whether you are a business tenant or a commercial landlord, you are more likely than not aware of the Landlord and Tenant Act 1954 (“the Act”) and its contracting out procedure. The Act has long been criticised for being out of date and unclear, and the Law Commission recently announced it would be reviewing the Act with a view to publishing a consultation paper later this year. In this article, Shujeth Ahmed examines the reasons for the Law Commission’s review and possible changes to Act that may result.
The Act is a central piece of property legislation that gives businesses the right to stay in their premises and renew their lease after the expiry of the original lease term (except in certain limited circumstances). ‘Contracting out’ is where the landlord and tenant agree before entering into the lease to exclude this statutory right to ‘security of tenure’.
While this is a useful device for landlords, the contracting out procedure must be carried out with care due to its strict requirements. As exclusion has a significant impact on a tenant, there has been much litigation since the Act came into force about whether these requirements have been met.
The judgment in TFS Stores Limited v BMG (Ashford) Limited et al  EWHC 1363 (Ch) is a recent reminder of the rigmarole of the current outdated system and the need for review. In this case, the tenant failed in its claim that the landlord had failed to serve the requisite notices properly, but it demonstrates how disputes are still arising about the Act’s formalities nearly 70 years after it came into force. The Law Commission of England and Wales announced in March 2023 that it will evaluate this critical area of landlord and tenant law.
Driving force behind the Law Commission’s review
It is now 20 years since the legislation was last reviewed and amended. Those who rely on the Act say it is inflexible, bureaucratic and outdated, causing extra cost and delay for landlords and tenants. It also prevents space in high streets and other commercial centres from being occupied quickly and efficiently.
Furthermore, following the rise of online retail, the 2008 financial crisis and the recent pandemic, the landscape for businesses has also shifted significantly, leading to growing calls for laws to be modernised. Today, many landlords and businesses entering into leases decide to contract out and exclude security of tenure, leaving businesses without their longstanding statutory right to a new lease.
The Law Commission’s review will explore problems with the existing law with a view to developing a modern legal framework that is widely used rather than opted out of and helps businesses grow and communities thrive. The review will also seek to support the long-term resilience of high streets by making sure current legislation is fit for today’s commercial market.
Possible changes the Law Commission may seek to make
At present, if the parties agree to contract out of the Act, a landlord must serve a warning notice on a tenant, who then needs to make a simple declaration (which involves a 14-day cooling-off period) or statutory declaration (which must be sworn in front of an independent solicitor) confirming they understand the implications of contracting out of the Act.
The case law on this point demonstrates that parties or their representatives frequently fail to satisfy the Act’s notice requirements, resulting in the lease falling within the protection of the Act despite the parties’ intention. This means landlords must grant the tenant a new lease at the end of the term when there was no original intention between the parties for this to be the case.
A major argument is that the process could be streamlined by allowing notices to be served via email and accepting electronic signatures. Indeed, some have called for the requirement of notices to be scrapped altogether, instead suggesting the exclusion of the tenant’s security of tenure should be dealt with on the face of the lease itself.
In summary, the Law Commission hopes to remove the barriers that inhibit growth by modernising the legal framework and making sure it is fit for today’s market. The aim is to support the efficient use of space and foster a productive, beneficial leasing relationship between landlords and tenants. This will help to create a leasing framework that supports the government’s priorities of growing the economy and aiding the regeneration of our town centres.
The review will also help to make leasing clearer and more easily accessible to small businesses and community groups, reducing the growing number of vacant properties on our high streets and the anti-social behaviour that comes with it.
The Law Commission plans to publish a consultation paper by late 2023, which surely cannot come soon enough for landlords, tenants and solicitors alike.
Anyone entering into a new lease of a commercial premises (even if it is a short-term lease) should take legal advice as this can have severe implications on the operation of their business.
If you would like to discuss any matter relating to a lease of business premises, please contact Shujeth Ahmed at [email protected].
Disclaimer: The above is merely general guidance and should not be relied on as formal advice. We suggest you take professional legal advice before taking any action in relation to the issues discussed above.