Reform of the Landlord and Tenant Act 1954

Last year Taylor Joynson Garrett participated in the Government's consultation exercise on proposals to streamline Part II of the Landlord and Tenant Act 1954. This piece of legislation, which governs security of tenure for tenants of business premises in England and Wales, is particularly well drafted and has stood the test of time for almost 50 years with very little amendment.

In February this year, the Government issued its response to the consultation, which gives details of the comments received, the conclusions and proposals for change. It appears from the response that the main recommendations in the consultation paper are to be adopted and the revised proposals broadly follow the original ones.

The salient features of the proposed reforms are:

1. Exclusion of Security of Tenure - The present requirement, to obtain a court order to allow the exclusion of the security provisions of the Act from new leases, is to be replaced by notice provisions. It is intended that tenants should be given at least 14 days’ advance notice containing a "health warning" drawing the prospective tenant's attention to the implications of contracting out of the security provisions of the Act. The Government has acknowledged concerns regarding their original requirement for statutory declarations by the tenant, on each occasion, acknowledging that the tenant had received the notice, read the" health warning" and accepted its consequences. Such statutory declarations will now only be required if less than 14 days’ notice is given.
2. Surrenders - The procedures for surrender agreements will be broadly similar to those for contracting out leases mentioned above.
3. Ownership and Control of a Business - The Government has attempted to remove anomalies as to which business entities qualify for rights as tenant or have obligations as landlord under the Act. There is to be an extension of the definitions of " landlord" and "tenant", which will allow related companies to qualify under the Act. The proposals will, however, only apply to the existing parties and not to entirely new business entities, as a safeguard to landlords concerned about the quality and covenant strength of new companies.
4. Notices Requiring Information - The information-gathering provisions contained in section 40 of the Act are to be strengthened and there is to be a new right to damages for failure to comply. However, calls for standard fixed penalties have been rejected. The landlord should now be informed if a group company is in occupation or there is a contracted out underlease. Landlords are to be able to serve Section 40 Notices on both the premises and the tenant's address, which should assist in situations where the tenancy has changed hands. Section 40 Notices may also be used in relation to termination arising from landlords’ break clauses. A break clause is a "notice to quit" for the purposes of the Act and the new provisions will take this into account. In addition, there will be clarification of the court's existing power to order a recalcitrant party to provide the required information, which had previously not been clear on the face of the legislation.
5. Renewal - Landlords who do not intend to oppose renewal of a lease will be required to include proposals (including rent) for the new lease in the Section 25 Notice. This could be problematic, as it will mean that the landlord must attempt to predict the development of the market well in advance of the end of the existing term. However, there will be a declaration to state that this is an "opening bid" and that the landlord's proposals are not final and binding. The requirement for a tenant to serve a counter notice will be abolished.
6. Termination - The Government is proceeding with its proposal that landlords will be able to apply for termination of a tenancy without the court having to consider renewal of the lease. However, if the landlord is unsuccessful, the court is empowered to order a new tenancy and settle its terms and the landlord would not be able to withdraw proceedings without the tenant's agreement. Tenants will be able to end fixed term tenancies without notice by vacating on or before a final day. This gives statutory effect to the decision in the case of Esselte AB v Pearl Assurance Ltd. A three months’ notice to terminate served under Section 27(2) to bring to an end a tenancy which had continued beyond the end of the contractual term, may expire on any day rather than a quarter day as at present.
7. Time limits - Time limits governing a tenant's notice and application to the court will be retained for the time being, but kept under review. The general view is that they should only be retained if essential to the renewal process. The Government accepts that there is no procedural necessity for time limits, but primary legislation, which would require a separate consultation exercise, would be needed to abolish them. However, the current stringent time limits are to be amended enabling parties to apply to the court at any time before the date specified in the landlord's notice to terminate under section 25 or the tenant's request for a new tenancy under section 26. In addition, parties will be able to extend time limits by agreement.
8. Interim Rent - Tenants as well as landlords will now be able to apply for an interim rent. This will normally be that set for the new tenancy but the court will have discretion to order an adjustment where appropriate. It will be open to the parties to seek expert determination of interim rent rather than pursuing a court application.
9. Length of New Lease - The maximum term of the renewed lease will be increased from 14 to 15 years. This is a better fit with the usual rent review patterns of 3 or 5 years.
10. Compensation - The Government is to proceed with proposals to review the compensation rules where a tenant is precluded from renewing the tenancy. Compensation is currently based on Uniform Business Rates, which is not regarded as appropriate for the specific financial circumstances consequent on being unable to remain in the premises, which the Act aims to address. The Government also plans to review the rule that entitles the tenant to double compensation provided the tenant has operated from the premises for over 14 years.

The changes are to be implemented by a Regulatory Reform Order. A draft Order is being prepared and there will be two rounds of scrutiny by committees in the House of Commons and the House of Lords. The Government has also informally indicated that there will be a programme of publicity and education before the changes come into effect which is expected to be sometime around Easter 2003.