by Delyth Williams
The Law Commission has recently published its working paper on Part II of the Landlord and Tenant Act 1954 (Working Paper No 111) which comprises an extremely thorough and well-researched analysis of the practical problems of the 1954 Act’s operations and procedures. The working paper is intended to form part of the Law Commission’s consultation on Part II of the 1954 Act and it is hoped to obtain comments on the provisional views from landlords and tenants of business premises and their professional advisers. While it is to be noted that in November 1985 the Secretary of State for the Environment concluded that the review of the 1954 Act would not lead to legislative changes, the Law Commission is of the opinion that there are significant areas of concern in the 1954 Act’s ambit and procedure which can be identified under the following headings:
(1) Occupation for business
(2) Notices
(3) Time-limits and court applications
(4 ) Interim rent
(5) Contracting out
(6) Miscellaneous proposals
This brief article seeks to highlight the main areas of the commission’s working paper and it is hoped that it will act as a source of initial reference for the busy practitioner.
Occupation for business
The working paper recognise three questions of difficulty under this heading, namely (a) the question of ownership of the business; (b) occupation of the property; and (c) unauthorised business use. The question of the ownership of the business raises issues of rights under the 1954 Act, for example following the decision in Cristina v Seear (1985) 2 EGLR 128 it is clear that an individual tenant trading through the medium of a company has no renewal rights. On the question of the “corporate veil” the working paper concludes that, for the purposes of the 1954 Act, companies should be treated as identical to the individuals who control them and, further, that companies controlled by the same individual should be treated as members of a single group of companies. The main issue highlighted under the question of the occupation of the property is “should leases of incorporeal hereditaments be brought within the 1954 Act”? The working paper suggests that leases of incorporeal hereditaments should be brought within the 1954 Act and the simplest way of satisfying the Act’s requirements would be to change the requirement of occupation in these cases to a requirement of use. Finally, under this heading the matter of the 1954 Act’s provisions on the issue of unauthorised business use are considered. In this context the practitioner should refer to the provisions of section 23(4) of the 1954 Act which deals with the question of consent or acquiescence to the business use in breach of covenant. The commission’s conclusions on this head are that in the case of both current and former landlords, acquiescence in, and consent to, any business use by a tenant who is forbidden to use the property for business purposes should suffice to bring the tenancy within the 1954 Act.
Notices
Under this section of the working paper several key issues are analysed, namely:
(a) Landlord’s notice to terminate where the reversion is split;
(b) Tenant’s request to renew periodic tenancy;
(c) Tenant’s “pre-emptive strike”;
(d) Tenant’s notice to end fixed-term tenancy;
(e) Sanctions for failure to give information;
(f) Service of landlord’s counternotice;
(g) Service of tenant’s counternotice.
In the case where the reversion is split the landlords may sometimes be faced with the position where they cannot take effective action, for example, as in the case of Dodson Bull Carpet Co Ltd v City of London Corporation [5] 1 WLR 781. In this context the working paper seeks to differentiate between a landlord who originally let a property and then split the reversion (a “voluntary landlord of part”) and a landlord who has only ever owned the reversion of part of the premises (an “involuntary landlord of part”). In the case of a notice relating to part served by a voluntary landlord of part the commission favours allowing the tenant to require that it applies to the whole property. In the case of a notice served by an involuntary landlord of part there are two possibilities, namely (i) it would always only apply to the part of the property specified or (ii) it would allow the tenant to apply to the court for an order that it apply to the whole of the property. It is to be noted that there are various other matters considered on the issue of the split reversion which are beyond the scope of this brief article.
In the working paper the commission does not favour the introduction of a procedure for periodic tenants to request a new tenancy in the case of a short periodic tenancy. However, the commission does favour a change in the rules which allows the tenant to make a “pre-emptive strike” under section 26 of the 1954 Act. The favoured proposal is to allow the recipient of a tenant’s request or a landlord’s notice to serve a counternotice which would require the original request or notice to end the current tenancy on the earliest date on which the notice or request is served.
A small matter arises for consideration under section 27(2) in the case of a tenancy which has been extended automatically by the 1954 Act as that subsection now provides that if the tenant wants to give up the tenancy he has to give at least three months’ notice ending on a quarter day. It is proposed that the three months’ notice could expire at any time.
The commission proposes a change in the working of section 40 of the 1954 Act, which section provides that a landlord and a tenant have the right to serve notice on the other requiring him to give the required information as to who is in occupation and so forth. At present there is no sanction for failure to comply with a section 40 request. The three possible reforms are, first, to make it an offence to fail to respond without reasonable excuse. Second, to prevent the defaulter from taking further steps in any procedure for a new lease of the property in question. Third, expressly to give the person serving the notice a right of action against a recipient who failed to respond for all damage flowing from that failure.
Time-limits and court applications
The present position is that the 1954 Act requires a counternotice to be served within strict time-limits on two occasions, namely: (i) under section 25(5) in response to a landlord’s section 25 notice the tenant must serve counternotice to state whether or not he is willing to give up possession; and (ii) where the tenant serves a section 26 request for a new tenancy the landlord may give a counternotice within two months stating that he will oppose the application for renewal. In the case of the landlord’s counternotice to a section 26 request it is proposed that no amendment is required to the 1954 Act but reform proposals are made in the case of the tenant’s counternotice. Two possible courses of action could be considered, the most obvious being that the requirement for a tenant’s counternotice should be abolished. The alternative, which is based upon the relaxation of the time-limits for applications to the court and a change in the interim rent provisions (which are considered below) would give the tenant the right to serve a notice which would disentitle him from applying for a renewal of the tenancy with the current tenancy ending on the date specified in the section 25 notice.
At present, a tenant who wishes to protect his rights under the 1954 Act must apply to the court not less than two nor more than four months after the section 25 notice or the section 26 request. The possible reforms in this area that are considered in the working paper are as follows:
(i) Give the court discretion to waive the time-limits;
(ii) Allow parties to vary the time-limits by agreement;
(iii) Remove the time-limits;
(iv) Allow the landlord to reimpose the time-limits by serving a notice on the tenant;
(v) Allow either party to commence proceedings.
It is to be noted that the proposal which the commission provisionally favours is that of allowing either party to commence proceedings.
Interim rent
Perhaps no other area of the 1954 Act’s working poses more complex problems for the busy practitioner than that of interim rent under section 24A. In its working paper the commission commences its consideration of this area by posing the question: “Should there be interim rent?” The provisional conclusion reached is that the present provisions are flexible enough to deal with a variety of situations and should be retained except where the following conditions are met:
(i) the landlord’s notice or the tenant’s request relates to all the property let by the current lease;
(ii) the tenant is in occupation of all the property;
(iii) in the landlord’s notice, or his counternotice responding to the tenant’s request, he states that he would not oppose the grant of a new tenancy.
In this type of case no special interim rent would be necessary as the new rent would backdate to the date given, in the landlord’s notice or the tenant’s request, for ending the current lease.
Having considered whether the interim rent provisions under section 24A should be retained, and how they should be modified, the working paper proceeds to consider some of the problems inherent in making an application for interim rent. The first conclusion reached on the issue is that the tenant should be permitted to apply for the determination of an interim rent. The second problem area stems from the fact that it is only the competent landlord who can make the application for an interim rent but, in the case of sublet premises, it is the head tenant who will receive the benefit of the determination of an interim rent. There are further problems in the case of subletting of part only of the property. Two possible reforms can be considered in this context, namely:
(i) A landlord could have power to apply for an interim rent even though he was not the competent landlord;
(ii) An interim rent for the whole premises could be apportioned between parts of it.
Contracting out
It will be clear to the busy practitioner that the area of “contracting out” of the 1954 Act is one where the interpretation of the provisions can pose difficulties. The commission identifies three problem areas, namely:
(i) Contracting out with court approval;
(ii) Surrenders and agreements to surrender;
(iii) Offer-back clauses.
On the issue of contracting out with court approval the working paper recognises that even if the court plays no positive role the existence of the requirement to make an application means that the landlord is obliged to bring the point expressly to the tenant’s attention. However, two points to be considered are outlined. First, would a statement by the tenant and his solicitor to the effect that the tenant understands the significance of a proposed agreement be a satisfactory substitute for approval by the court? Second, if the need for court approval were dispensed with should the 1954 Act prescribe the circumstances in which contracted out agreements were allowed?
The problems of surrenders and agreements to surrender are thoroughly discussed in the working paper and the main factors considered in need of reform are threefold. First, whether the distinction between agreements to surrender which the 1954 Act invalidates and an actual surrender, which is permitted, is satisfactory? Further, whether agreements to surrender which are intended to take immediate effect should be valid? Finally, it is suggested that section 24(2)(b) of the 1954 Act should be amended to omit references to agreements to surrender because, as section 38(1) has been held to invalidate all agreements to surrender, the one-month time-limit mentioned in the subsection is irrelevant.
The final issue on the subject of contracting out of the 1954 Act’s provisions is the operation of offer to surrender back clauses following the decision of the Court of Appeal in Allnatt London Properties Ltd v Newton [4] 1 All ER 423. Several possible approaches to reform are canvassed. One possible approach would be to invalidate an offer to surrender back clause in whole or in part, but such clauses usually contain the only provision limiting the right which tenants have (unless restricted) freely to dispose of the property. It may be possible, however, only to invalidate the offer to surrender back element of the clause. Possible alternatives to a complete or partial prohibition could be:
(i) The landlord could apply to the court for validation of the clause on the ground that in all the circumstances it was reasonable for the lease to be in that form;
(ii) The landlord could apply to the court to validate a particular agreement on the ground that there were special circumstances justifying his requiring a surrender;
(iii) The landlord could apply to the court to validate a particular agreement to surrender on the grounds that the tenant would receive full market value under it and would not be prejudiced in any other disposal.
Miscellaneous provisions
The terms of the new lease are of obvious importance both to the landlord and tenant and the court is empowered under sections 32 to 35 of the 1954 Act to determine any or all of these terms in default of agreement between the parties. The commission’s view is that most changes to these sections would alter the balance of the 1954 Act so that such changes have not been considered for that reason. The only aspect of the new lease terms to be considered in detail is that of the duration of the new lease, and the working paper highlights the anomaly of the maximum term of 14 years which is granted under section 33. The reforms proposed vary from extending the maximum limit on the court’s powers to removing the limit altogether. An alternative proposal might be for the 1954 Act to state what matters to which the court should have regard in determining the duration of the new lease.
The final proposals for reform in the working paper appertain to the compensation provisions in the 1954 Act, namely compensation for the refusal of a new tenancy under the grounds in section 30(1)(e), (f) or (g) and, second, compensation for misrepresentation. On the issue of compensation for the refusal of a new tenancy the commission is of the opinion that any radical change is beyond the scope of a periodic review such as in the working paper. The anomaly in Edicron Ltd v William Whiteley Ltd [4] 1 WLR 59 is highlighted whereby occupation of some part of the property for at least 14 years qualified the tenant for compensation at the higher rate, and the working paper questions whether reform is necessary to redress this. Finally, the working paper suggests that compensation for loss from misrepresentation should be available where the tenant loses his right to renew without making a court application.
To summarise, the Law Commission’s working paper suggests proposed reforms on:
(1) Ownership of business
(2) Leases of incorporeal hereditaments
(3) Unauthorised business use
(4) Landlord’s notice to terminate tenancy, where reversion is split
(5) Tenant’s request to renew periodic tenancy
(6) Tenant’s “pre-emptive strike”
(7) Tenant’s notice to end fixed-term tenancy
(8) Sanctions for failure to give information
(9) Service of landlord’s counternotice
(10) Service of tenant’s counternotice
(11) Court application time-limits
(12) Changes in interim rent
(13)Applications for interim rent
(14) Approved contracting out
(15) Surrenders and agreements to surrender
(16) Offer-back clauses
(17) Length of term of new tenancy
(18) Compensation for refusal of new tenancy
(19) Compensation for misrepresentation.