Paul Tonkin draws conclusions from the Property Litigation Association’s survey to highlight areas where the Law Commission may make reforms.
In the 20 years since the Landlord and Tenant Act 1954 (Part II) was updated in 2003, there have been increasingly vocal calls for it to be revisited. The government announced the intention to undertake a review in December 2020, but this fell by the wayside during the pandemic and there has been little movement since.
That is, until last week’s announcement (rather unusually, as part of the Anti-Social Behaviour Action Plan), that the Department for Levelling Up, Housing and Communities had commissioned a Law Commission review of the Act.
While we will have to wait until December 2023 for the Law Commission’s consultation paper to be published, the Property Litigation Association has already carried out an extensive consultation exercise with its members, who deal with the vagaries of the 1954 Act on a daily basis.
This sets out clearly what is working well but also where the Act is leading to its own “anti-social behaviour”.
Security of tenure
There has been much discussion in government about leasehold reform in the residential context, with Michael Gove and the DLUHC being in favour of abolishing leasehold ownership altogether. In the commercial context, however, the government’s view appears to be that security of tenure is here to stay, albeit in a hopefully new and improved form.
Under the 1954 Act as it currently stands, only short-term leases of six months or less are automatically excluded from security of tenure. That said, increasingly large numbers of leases are contracted out of the Act.
The government’s intention is that the security of tenure regime be one that both landlords and tenants actually use, rather than contract out of.
One answer is to make security of tenure automatic for all business tenancies, or for all leases over a certain length – say three to five years.
Another is to increase the threshold of “short-term” leases outside of the scope of the Act from six months to a year, or even more, and make protected leases the norm outside those limits.
This might do something to reverse the trend for ever shorter lease terms and perhaps encourage longer term investment in properties.
As one of the main benefits of security of tenure is protecting goodwill, another alternative is to automatically bring leases for tenants in certain sectors – such as hospitality, retail or community related services – into the Act. That said, landlords could see any such proposal as taking away their freedom to contract on an “outside the Act” basis.
The Law Commission could take inspiration from the Telecoms Code to help simplify the Act and include only written agreements. This would avoid the confusion which can be caused by periodic tenancies and undocumented agreements falling within the Act inadvertently.
Complexity of the Act
While the premise of the Act is straightforward, its nuances are not and the Act’s somewhat technical provisions have been supplemented by a body of case law which has developed over the past 70 years. The Law Commission may well try to streamline the lease renewal process, making the Act easier to navigate.
While the ability to contract out of the provisions of the 1954 Act is widely supported – and is a huge improvement on pre-2004 process, which required a court order – this could still benefit from being simplified.
Under the Act as it currently stands, landlords must serve a warning notice on a tenant, who must then make either a simple or statutory declaration (witnessed by an independent solicitor), confirming it understands the rights being given up.
Though the notice process provides an important pause to confirm the tenant knows what they are giving up, there are concerns around fairness when errors in the process could mean a landlord is subject to a protected lease.
The notice process can also cause problems in agreements for lease, where there may be a change of landlord between exchange and completion, while uncertainty can also arise where variations to the lease are agreed at the last moment, after the notice has been served.
The need for a statutory declaration (which is the norm to avoid the 14-day cooling off process required if the simple declaration is used) also means this is a lawyer-led process, which makes it less accessible to smaller tenants and introduces an additional layer of bureaucracy.
The notice and declaration process could be streamlined by introducing an online procedure which permits e-mail notice and electronic signatures and requires a simple rather than a statutory declaration.
It could even do away with the notice process altogether and simply require a warning notice and tenant confirmation on a completed lease. This would have the advantage of making it immediately apparent if the lease fell outside the terms of the Act, and force parties to apply their minds to the 1954 Act position.
The Law Commission could also look into whether the notice and declaration process is still needed for agreements to surrender a protected lease.
Forums for disputes
The courts have always been the main forum for determining 1954 Act disputes, and the process is a well-trodden path with judicial expertise.
However, while court delays are not unique to disputes around the Act, anyone experienced in the area will be well aware of long waiting times for both opposed and unopposed renewals.
In order to improve the court process, the Law Commission could consider imposing a pre-action protocol – akin to the dilapidations protocol – requiring meetings between experts at an early stage to encourage the parties to reach agreement without the need for court proceedings.
However, it may be necessary to have costs sanctions for non-compliance to ensure this is a helpful process, rather than a box-ticking exercise.
Alternatively, the Law Commission could consider whether another forum would be better placed to deal with 1954 Act claims, such as the First-tier Tribunal or an arbitration process.
• First-tier Tribunal
The Renters Reform Bill – expected to be put before parliament in this session – has also noted the impact of delays on possession proceedings. It proposes making a greater use of the FTT, which could also be a solution for 1954 Act disputes.
The pilot scheme for unopposed lease renewals – where cases in central London are transferred to the FTT – has proven broadly popular, with cases being dealt with markedly more swiftly.
The FTT’s judges can be more specialist and experienced with property claims and there is often a surveyor on the panel too. However, there is a risk of this transferring the problem and relieving the courts at the expense of the FTT, which could be overwhelmed.
The solution may be for the FTT to deal with more straightforward unopposed lease renewals, leaving County and High Courts as an option for more complex cases.
• Arbitration
More radically, the Law Commission could even consider removing the 1954 Act process from the courts altogether and use the Covid rent arrears arbitration scheme as inspiration for a new forum to resolve 1954 Act disputes more swiftly.
The Law Commission would need to consider how to resource an arbitration scheme, but arbitration has the benefit of being a more flexible process, which could potentially reduce the cost.
Specialist arbitrators and valuers could also be appointed by virtue of their expertise in this area, while making the arbitration process public rather than confidential would ensure consistency.
Statutory compensation
Currently, protected tenants are entitled to receive statutory compensation where the landlord successfully opposes renewal on one of the no-fault grounds, such as redevelopment.
The Law Commission may revisit this, asking whether statutory compensation should still be payable at all and, if so, calculated by a different measure, such as annual rent or even tenant profit.
While a more bespoke regime may seem fairer, it will inevitably add another layer of complexity and could lead to yet more litigation. Compensation is currently calculated by reference to the rateable value of the property, which provides certainty, and is a straightforward calculation method.
An unenviable challenge
These are just some of the questions the Law Commission will need to grapple with. In revisiting these long established principles and processes, there is always a risk that attempts to improve the 1954 Act may lead to additional complexity, or even unintended consequences, leading to more litigation.
However, it is difficult to disagree with the conclusion that reform of the 1954 Act is long overdue and – if nothing else – the opportunity to deal with court delays and create a simpler process will be welcomed across the board.
Paul Tonkin is the chair of the Law Reform Committee of the Property Litigation Association and is a partner at Hogan Lovells International LLP
See also: Property litigators call for a ‘streamlined’ Landlord and Tenant Act to help business growth
