Law Commission’s review of the Landlord and Tenant Act 1954 in respect - business leases and security of tenure

What’s this all about? The Landlord and Tenant Act 1954 (aka the ‘54 Act) governs security of tenure for business premises. Specifically, the ‘54 Act includes a right for a business tenant to remain in a property and to take a new lease following the expiry of an existing lease. ’54 Act security is automatic (in respect of qualifying premises/tenancies), unless it is formally excluded using a prescribed statutory process. 

Sounding board? Stay with us! The Law Commission has been consulting on the '54 Act, including the following three aspects of potential reform:

• Retention of the current ‘contracting out’ model or, alternatively, ditching it and running with an alternative model, of which 3 were proposed.
• The types of tenancy to benefit from ‘54 Act security.
• What duration of tenancy should benefit from ’54 Act security.

There has been much debate about the potential reforms that might be proposed. 

Latest news? The Law Commission has issued an interim statement. Their provisional conclusions appear to indicate that not a lot is going to change. 

In particular, the Law Commission has recommended that the default position remains to ‘contract out’ of security of tenure and to keep the types of excluded tenancies as they are, though there is a further consultation on whether to increase the minimum tenancy length before qualifying from six months (and, if so, how far to raise it).

Sea change or swimming against the tide? Elsewhere across the political and legal landscape sweeping reforms of residential property ownership and operating models are taking place, however the same cannot be said for commercial property. The abolition of the ’54 Act would undoubtedly represent a period of ‘reformation’ within the commercial property world. However, in practice, such a change would only affect a fraction of people/organisations compared to the current commonhold proposals, so it may not be such a vote winner as the changes to the residential market. There is also a more practical issue with ’54 Act reform. To give an example, a large nationwide retailer relying on a distribution network with warehouses and logistical concerns is likely to require (and be in the position to negotiate for) ’54 Act security, whereas a local pop-up shop or start-up is unlikely to have the same leverage over a high street unit. In commercial property, one size doesn’t fit all – and so legislating for a holistic approach is difficult.

Should we be happy with the status quo? To get a bit technical for a moment, there is a conversation to be had around the way contracting out is done and whether a statutory declaration is necessary. Particularly, when one considers the number of other potentially onerous clauses that appear in a lease which don’t need confirmation by an independent solicitor that the Tenant understands them! That said, removing that step from the process is unlikely to represent a material change. The importance of taking advice on the ’54 Act and its implications at an early stage would remain unchanged and so this would be an administrative rather than a legal shift. Similarly, lifting the qualifying period is unlikely to end up with new heads of terms being drawn up unless the uplift is substantial – the Law Commission are consulting on whether to raise it to two years but, in practice, it is a rare to see a two-year lease with ’54 Act security.

Going forward? For landlords, it remains key to understand your stock and/or the type of tenant you are looking to attract. 

Tenants, on the other hand, should consider not only their immediate needs but also any long-term growth plans. ‘54 Act security may come at a higher rent but if there are bold plans and a clear pathway to expansion centred around specific commercial units, this may prove to be money well spent, given the certainty it provides when meeting strategic objectives.

Please get in touch with us if you would like to discuss any of the issues raised in this article.