Security of Tenure reimagined - Speak now or forever hold your lease!

For anyone involved in the letting of business premises, including investors, developers, occupiers, property managers, surveyors and lawyers, the rules regarding the renewal of business tenancies contained in Part 2 of the Landlord and Tenant Act 1954 (“1954 Act”) will have played a constant role. 

Now that may be about to change. 

On 19^th November 2024, the Law Commission published a consultation paper titled "Business Tenancies: The Right to Renew", which explores potential fundamental changes to those rules.  

Full details of the consultation, including links to the full consultation paper, a summary, the consultation response form and a survey can be found on the Law Commission’s website.

We summarise below the key points on which views are requested. 

Possible changes to security of tenure

At the heart of the 1954 Act is the security of tenure granted to a business tenant. In other words, subject to a landlord’s right to object on certain statutory grounds and the right of both parties to agree that the rules won’t apply, a business tenant is allowed both to continue to occupy premises after the expiry of the term of its lease and to request a new tenancy on terms to be ordered by a court if the parties can’t agree them.  

The consultation paper invites views on the following four potential future models for security of tenure in relation to business tenancies:

1. Mandatory security of tenure: tenants would always have the right to renew their tenancy, with no option for landlords and tenants to contract out of that right being granted.
2. No statutory security of tenure: abolishing the statutory right to renew, leaving renewal to be negotiated between landlords and tenants. The renewal could be negotiated before the end of the tenancy, or the tenant could be given a contractual right to renew in the lease when it is originally entered into.
3. Contracting-in: tenants would not have security of tenure by default but could opt into the statutory scheme.
4. Contracting-out: this is the current model, where tenants have security of tenure by default unless they agree to contract out.

Scope of the 1954 Act

The paper also considers whether the scope of the 1954 Act should be changed. 

Views are invited on whether the current exclusions, based on the use of the premises or the length of the tenancy, should be changed and on whether other exclusions should be considered based on, for example:

• the existence of other legislation performing a similar protective function; or 
• other characteristics such as the floorspace, location or level of rent payable.

Impact on the Market

In providing views on the above points, consultees are asked to also state how changes to the model and scope of security of tenure might impact:

• landlords and tenants: in terms of the balance of power, negotiation dynamics and financial implications for both parties; and
• the commercial leasehold market:  in terms of potential effects on market stability, investment and the availability of business premises.

Wales

Factoring in the devolved powers now exercised in Wales, the Law Commission also ask whether there are any particular considerations or experiences relevant to the potential reform to the model or scope of security of tenure in Wales.

What happens next?

The consultation is open until 19 February 2025 and responses can be submitted by email, post or online at Business Tenancies Consultation Paper 1 - Ministry of Justice - Citizen Space 

The Law Commission has stated that, once they have considered the responses and decided on their recommendations about whether the law should change, they expect to publish a second consultation paper about the detail of how the model would work. 

Once they have reached their conclusions following the proposed second consultation, they will publish their final recommendations for reform, after which it will be for the Government to decide whether to implement the recommendations. 

Talk it though with us

Whether or not you’re planning to formally respond to the consultation, we’re interested to hear the views of investors, developers, occupiers, property managers, surveyors and anyone else in the commercial property industry who would be affected by any changes, so please get in touch with us on email if you’d like to talk through the points raised in the consultation and share your views on the main issues with one of our team.