Earlier this year, the Law Commission closed its consultation on the way business tenancies are protected under the Landlord and Tenant Act 1954 (the "Act"). The consultation was multifaceted, and now the Law Commission has released an interim statement on three of the key issues addressed:
- Whether the current "contracting-out" model of security of tenure should be retained, or a different model be adopted.
- What types of tenancy should benefit from security of tenure under the 1954 Act.
- What duration of tenancy should benefit from security of tenure under the 1954 Act.
The conclusions are only provisional, and the Law Commission will release a further consultation paper before making any final decisions. However, they are indicative of market sentiment on the issue, as well as the likely changes which can be expected in the future.
The contracting out model
Under this model, protection is automatically applied to every eligible business tenancy, known as security of tenure. However, the parties to a lease can agree that the tenancy created will not benefit from the protection offered by the Act, by 'contracting out' of the Act.
In practice, protection means that the tenant will be entitled to stay in occupation of the property even after the expiry of the lease, provided that the landlord has not served a valid notice on them to terminate the lease. It also limits the circumstances in which a landlord is allowed to terminate the lease, should the tenant wish to renew.
If the parties agree that the tenancy should not be protected by the Act, this gives landlords greater flexibility to deal with the property, although it does not afford tenants with the security which they would otherwise have, which could lead to disruption to their business.
The Law Commission sought consultation on three other models of security of tenure: a mandatory model, a contracting in model, and an option to abolish statutory protection of security of tenure.
According to the interim statements, however, the Law Commission received strong feedback that retaining the current model, which strikes a balance between landlord's flexibility and tenant's security, would be best. Additionally:
Notable numbers of consultees were also concerned that a change in model would cause unwarranted disruption to the commercial leasehold market.
Types of tenancy to be afforded protection
The Act currently excludes certain types of business tenancies from being eligible for protection. These include agricultural tenancies and mining tenancies. Additionally and as discussed below, tenancies shorter than six months largely do not fall within the definition of a qualifying business tenancy, so also do not benefit from protection.
The consultation considered, among other things, that some types of leases do not require dual protection, as may be the case for leases protected by essentially competing statutory regimes. The Act had previously been amended to exclude tenancies of which "the primary purpose ... is to grant code rights within the meaning of the [Electronic Communications Code]", for example, as these tenancies may fall under both instruments, but it is unreasonable to require protection from both.
Despite these considerations, which included both expanding and reducing the list of excluded tenancies, the feedback received by the Law Commission has generally carried the sentiment that the Act should not be altered in this regard. The Law Commission has stated that it agrees with this feedback.
Duration of protected tenancies
On this issue, the respondents to the consultation actually advocated for a change to the Act.
Although the Law Commission reported receiving a variety of responses to this section of the consultation, they are of the opinion that the threshold for receiving protection under the Act should be increased to two years, rather than six months.
The aim of this would be to increase flexibility in the short-term rental market, and would likely lead to landlords being more willing to let their properties on a short-term basis. They would be less exposed to the risk of their property being occupied beyond the agreed term of the lease, and not have to worry about the time and cost associated with contracting out of the Act.
Next steps
The Law Commission will next publish a paper on the technical elements of reforming the Act, using these interim conclusions as a basis. They have not provided a likely timeline for this. However, they have noted that any alteration to the security of tenure regime may cause substantial disruption to the market, so it is unlikely that any legislative changes will be made without due and lengthy consideration.
The initial consultation can be found here: Business tenancies consultation paper 1 and summary – Law Commission.
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