The Law Commission has recently published a consultation paper reviewing the tenant’s right to renew a business tenancy in England and Wales.
Part 2 of the Landlord and Tenant Act 1954 gives tenants who let property from their landlord for their business a legal right to renew their lease at the end of the lease term. This is known as ‘security of tenure’. When a tenant has security of tenure, a landlord has limited statutory grounds upon which they can rely to oppose a lease renewal and if the parties cannot agree the terms of the new lease, the Court can step in and decide.
The 1954 Act is a significant part of the legal framework behind commercial leases and the Law Commission’s consultation paper, which will be the first of two reviewing the 1954 Act, asks whether business tenants should have security of tenure and, if they should, which model of security of tenure is best.
Under the current model, the default position is that the tenant has security of tenure unless the parties follow the ‘contracting out’ procedure where they have agreed that the security of tenure provisions contained within the 1954 Act will not apply.
The Law Commission’s consultation paper reviews whether this current model is fit for purpose in today’s commercial leasehold market and the following alternatives:
- Mandatory statutory security of tenure: where the parties cannot agree to “contract out” of the statutory security of tenure regime.
- No statutory security of tenure: where there is no statutory security of tenure regime.
- A “contracting-in” regime: where the default position is that tenants have no statutory security of tenure, but parties can “opt in” to the regime.
The Law Commission consider the pros and cons of each of the models, particularly the balance of tenant protection and freedom for the landlord, the administrative burden of the statutory processes and how these different models may affect the commercial leasehold market.
The consultation paper also looks at which types of business tenancies should benefit from security of tenure. The current regime is far reaching and nearly all business tenants will have security of tenure unless they agree to ‘contract out’.
With so many factors to consider, choosing whether to maintain the current model of security of tenure or to amend the 1954 Act to reflect one of the alternatives is not an easy task. The 1954 Act has been the foundation of commercial leases for the past 70 years and any reform is likely to have a significant impact on landlords, tenants and other stakeholders.
You can read the summary and full consultation paper here: https://lawcom.gov.uk/project/business-tenancies-the-right-to-renew/ and you can have your say by responding to the consultation by 19 February 2025.
If you have questions about anything covered in this article, please do get in touch with Rebecca Williamson or another member of our Commercial Property team.
