UK: A Review of the Reforms to the Landlord and Tenant Act 1954

It is now more than 18 months since the provisions of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 came into effect to amend the Landlord and Tenant Act 1954. The reforms have been well received and are widely considered to have improved fairness and ended tactical use of the statutory provisions by landlords and tenants alike.

Following the reforms either a landlord or a tenant may apply to the Court for an Order granting a new tenancy. There is therefore greater parity between landlords and tenants to dictate the pace of renewal proceedings. Also, the 2 month "window" for making an application for a new tenancy has gone, and both landlords and tenants have until the date specified in the Section 25 Notice or the day before that specified in the Section 26 Notice to make an application to the Court.

However, landlords may apply to the Court for termination orders if they require possession of premises pursuant to grounds (e) (f) or (g) in Section 30(1). To do this they need not propose terms for a new tenancy, but must have opposed renewal with either a negative Section 25 Notice or a negative counter-notice to a Section 26 Notice.

If a tenant is not in occupation at the expiry of the term of the lease, the tenancy will not be continued by Section 24.

This amendment set in statute the decision of the Court of Appeal in the case of Esselte A B –v- Pearl Assurance Plc. However, in the case of Single Horse Properties –v- Surrey County Council, the tenant successfully argued this point, despite the fact that the landlord had served a Section 25 Notice and the tenant had served a counternotice and made an application to the Court seeking a new tenancy before vacating the premises prior to the contractual term date.

In bringing a tenancy to an end in this way, a tenant is not under an obligation to notify a landlord of its intention to depart, if this is before the expiry of the contractual term of the lease, regardless of a later date stipulated in a Section 25 or Section 26 Notice or whether an application has been made to the Court seeking a new tenancy. This is one area where a tenant continues to have the upper hand notwithstanding the stated objective of the reforms being fairness.

Interim Rent

Pursuant to the reforms, either a landlord or a tenant may apply to the Court for the determination of an interim rent if a Section 25 or Section 26 notice has been served. Only one application may be made, the first in time being the one which the Court will deal with.

Pursuant to Section 24B of the 1954 Act, if a Section 25 Notice has been served, interim rent will be payable from the earliest date which could have been specified in the Notice as the date of termination and if a Section 26 Notice has been served, interim rent is payable from the earliest date which could have been specified in the Notice as the commencement date of the new tenancy.

Whilst much of the tactical service of Section 25 and Section 26 Notices has been ended by the reforms, the date from which interim rent will be payable is still calculated with reference to the date of the Notice and will be a factor to be borne in mind when deciding whether and when to serve a Section 25 or Section 26 Notice.

There are three grounds for entitlement to compensation under the 1954 Act where renewal is successfully opposed:

• Section 37(1A):- where a tenant applies to Court for a new tenancy but the Court is precluded from granting the tenancy because the landlord successfully argues grounds (e) (f) or (g)
• 37(1B):- where a landlord applies to the Court for a termination order and successfully argues grounds (e) (f) or (g)
• 37(1C):- where a landlord opposes renewal on grounds (e) (f) or (g) only and either no application for a new tenancy is made by the tenant or by the landlord for a termination order, or such an application is made but is subsequently withdrawn.

It is still beneficial to a landlord to be able to put one of the non-compensatory grounds of opposition in a Section 25 Notice or a counter-notice to a Section 26 Notice provided this can be proved because it would negate the tenant’s opportunity to seek compensation unless he could overturn that ground.

In order to be entitled to the higher rate of compensation the tenant must have occupied 14 years immediately prior to the termination of the tenancy. That is the date specified by the landlord in his section 25 Notice or the date given by the tenant in his section 26 Notice. The relevant period is calculated back from that date. It is not sufficient for the tenant to rely on the fact that 14 years’ occupation has been acquired by the time he vacates. However, the tenant must weigh this against the fact that by staying on in occupation, further rent and outgoings would accrue, effectively reducing the amount of the compensation which the tenant receives.

Following the reforms, parties frequently agree extensions of time beyond the termination date given in Section 25 Notices or the date for the commencement of the new tenancy in Section 26 Notices for making applications to the Court. Whilst this would seem to be purely a matter of courtesy and convenience, it is worth bearing in mind that to grant such an extension is tantamount to extending the existing tenancy and prolonging the termination date until the end of the period agreed for the extension. This means that the rent payable by the tenant will remain the old rent and accordingly, a landlord’s decision to serve a Section 25 Notice at a particular stage may be unwittingly altered by virtue of granting such an extension.

Overall the reforms to the 1954 Act have proved successful and reflect commercial practice. However, there remain certain pitfalls and tactics which must be borne in mind.

© RadcliffesLeBrasseur

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.