As is well known to readers of this journal, Part 2 of the Landlord and Tenant Act 1954 gives business tenants in England and Wales security of tenure, unless they agree to contract out. If a tenant has security of tenure, then on expiry of the lease the tenant is entitled to a renewal tenancy, unless the landlord can oppose a renewal tenancy on particular grounds (for example, an intention to redevelop the property).
In March of 2023, it was announced that the Law Commission would review the regime giving business tenants security of tenure in the 1954 Act.
Our review represents a crucial opportunity to hold up the 1954 Act for inspection and to make sure the Act is working as it should in the modern world, especially in the light of the seismic challenges faced by businesses in recent years.
Our review of the 1954 Act
We decided to split our project into two stages. This first consultation paper, published on 19 November 2024, asks some key questions about the 1954 Act which need to be answered before we can consider the detail of the Act. We then expect to publish a second consultation paper, which will consider technical aspects relating to the operation of the Act.
The first consultation paper focuses on the model of security of tenure that should be provided by the Act. How security of tenure is provided has changed significantly since the Act’s inception. The 1954 Act originally provided for mandatory security of tenure. From 1970, landlords and tenants were allowed to contract out of security of tenure if they obtained authorisation from the court.
From 2004, the contracting-out process no longer required the involvement of the court, but instead required the landlord to serve a warning notice and the tenant to confirm that the consequences of contracting out were understood. We ask whether the contracting-out model remains the right approach, or if it is time for another change in the approach to security of tenure. We also ask about the type of tenancies that the 1954 Act should apply to.
This is the first consultation paper to consider fundamental reform of the 1954 Act for many decades. It sets out four models, some of which would involve significant changes to commercial leasehold law in England and Wales.
Models of security of tenure
We present four options and ask for views on them. Should the 1954 Act: (1) be abolished, removing security of tenure; (2) be made mandatory, so tenants always have security of tenure (reverting to the original operation of the Act); (3) be changed to a contracting-in system, so there is no security of tenure by default but landlords and tenants can opt in to having security of tenure; or (4) be retained, by which we mean keeping the current model where tenants have security of tenure by default, but can agree to contract out.
- Abolishing security of tenure The entire regime would be removed, but parties would continue to be able to negotiate options to renew. The main advantage of this model is the potential for cost savings for both parties, and the increased flexibility for landlords. The central disadvantage is the reduced level of protection for tenants.
- Mandatory security of tenure Security of tenure would be compulsory, and there would be no option to contract out. Some of the benefits of this model include the protection it would give to tenants, and the level of certainty it would achieve. The disadvantages are mainly that it would remove choice for all parties and may encourage landlords to avoid the mandatory system by granting fewer or shorter tenancies to avoid the application of the Act.
- A contracting-in model Landlords and tenants would be able to opt into a system of statutory protection, but the default position would be no protection. The benefit here is that parties would retain the flexibility to enter into tenancies either with or without security of tenure, but for those who prefer to operate outside the statutory scheme, there would be costs savings. On the other hand, tenants would be less protected under this model, and it is unclear whether the possibility to contract in would be exercised by many.
- A contracting-out model Security of tenure would be the default position, but landlords and tenants would be able to contract out. The regime would not necessarily be the same as the 1954 Act as it currently stands: following our second consultation, we may recommend reforms to the contracting-out process and to other parts of the regime.
The advantage of retaining a contracting-out model is that it is familiar and offers default protection to tenants, without them needing to ask for it or even know about it. However, it can be argued that this model involves undesirable cost and delay for those who wish to contract out.
Scope of the 1954 Act
In this consultation, we also ask whether the “scope” of the 1954 Act (namely, which tenancies have security and which do not) is appropriate. We ask whether there should be changes in the tenancies to which it applies. For example, certain tenancies could be removed from the scope of the 1954 Act based on the use of the property, the duration of the tenancy, or other factors.
Survey
Alongside our consultation, we are seeking responses to a survey about the current operation of the 1954 Act and its impacts on the commercial leasehold market.
Next steps
Once we have considered responses to this first consultation, we intend to publish a second consultation on the detailed operation of the security of tenure regime.
The approach to security of tenure that we adopt following our first consultation will greatly affect the content of our second consultation: for example, the questions we would ask if reform were based on abolition of the 1954 Act would be completely different from questions in a consultation based on mandatory security of tenure, or a move to a contracting-in model. Our first consultation will provide us with a clear basis for our review of the detailed substance of the Act.
The consultation period will be open until 19 February 2025. We encourage responses from as many people with an interest in the 1954 Act as possible – including as many readers of this journal as possible.
Around the world
It is interesting to consider how some countries have similar approaches to the 1954 Act, while others take completely different approaches.
In Northern Ireland and the Republic of Ireland, security of tenure for business tenants operates very similarly to England and Wales, save for contracting out. In the Republic, contracting out is an informal process. By contrast, in Northern Ireland it is not possible to contract out of security of tenure.
A different approach is taken in Scotland. Scottish law does not have any statutory regulation of commercial tenancies, but the Tenancy of Shops (Scotland) Act 1949 provides limited security for some tenants – which is currently under review by the Scottish Law Commission. Additionally, Scottish common law provides for “tacit relocation” which automatically extends a tenancy for one year unless notice to terminate has been served. Tacit relocation has also recently been considered by the Scottish Law Commission, with reform of the regime recommended.
A different approach is taken in Australia and New Zealand. In New Zealand, there is no statutory right to a renewal tenancy. In Australia, more protection is offered to business tenants, but it differs depending on the state, and the type of business. Protections include requirements for tenancies to be of a minimum duration, requirements for tenants to be given information about potential renewal tenancies, and in some cases rights of first refusal for existing tenants.
We have also explored the commercial leasehold system in two civil law systems: France and the Netherlands.
In France, commercial tenancies must be for a minimum duration of nine years (unless it is a short tenancy of up to three years). Notably, if the landlord does not grant a renewal tenancy at the end of the nine-year period, the tenant will be entitled to an eviction indemnity.
The system in the Netherlands is similar. Many business tenants are entitled to a tenancy with a minimum duration of 10 years (unless it is a short tenancy of up to two years). Tenants can apply for a continuation of the tenancy when it expires, and in some cases landlords will have to pay compensation to tenants whose tenancy does not continue. The parties can contract out of the protections in limited circumstances.
Full details of the consultation, survey and how to respond are available here:
https://lawcom.gov.uk/project/business-tenancies-the-right-to-renew/
Image © SevenStorm JUHASZIMRUS/Pexels
Professor Nick Hopkins is a law commissioner and Lucy McCaughan is a research assistant at the Law Commission
