The Law Commission is reviewing Part 2 of the Landlord and Tenant Act 1954, focusing on whether the legal framework that governs business tenants’ rights to renew their tenancies is still suitable in today’s market. The review could lead to significant changes, particularly for agents involved in managing commercial properties.

They are conducting a survey proposing four possible changes. These are:

  1. Mandatory security of tenure
  2. Abolishing the statutory security of tenure
  3. Contracting-in –the tenancy only has statutory security of tenure if the parties opt-in.
  4. Contracting-out – the tenancy has statutory security of tenure unless the parties opt-out (the current model).

You can access and respond to the survey yourself here. The consultation and survey both close on 19 February 2025.

Key Background on the Act

  • Part 2 of the Landlord and Tenant Act 1954 gives business tenants the right to renew their tenancies when they come to an end. This right is commonly referred to as security of tenure.
  • Contracting out refers to an arrangement where a landlord and tenant agree that the tenant will not have the automatic right to renew their lease when it ends.
  • The law, in place for almost 70 years, has been amended over time, but the last major revision occurred 20 years ago. The market for commercial leases has dramatically changed since the Act was first conceived, particularly with the rise of online retail, which has significantly impacted high street businesses.

Concerns About the Act’s Relevance

  • The Law Commission has identified that the current framework is burdensome, unclear, and outdated, creating unnecessary costs and delays for both landlords and tenants.
  • The Act is seen as preventing commercial spaces from being rented out quickly and efficiently, especially in areas like high streets, where vacancy rates are often high.
  • Feedback from landlords and tenants indicates that aspects of the Act are no longer practical, and many choose to contract out of the statutory right to renew. This leaves tenants without security of tenure, making it more difficult to maintain long-term occupancy in commercial properties.

Four Proposed Changes to the Framework

  1. Mandatory Security of Tenure:
    In this model, all business tenants would have the automatic right to renew their lease unless explicitly agreed otherwise by the landlord and tenant. This would remove the option for contracting out, making the security of tenure a permanent feature of all business tenancies.
  2. Abolishing Statutory Security of Tenure:
    This option would remove the tenant’s automatic right to renew altogether. Tenants would have no statutory protection and would need to negotiate their lease terms at the end of the tenancy. This change would give landlords more flexibility but could make tenants more vulnerable.
  3. Contracting-In:
    This proposal would allow tenants to opt into statutory security of tenure only if both parties agree to include it in the lease. If the parties do not opt-in, the tenant would have no right to renew. This would create a more flexible arrangement but still provide the option for security of tenure for tenants who desire it.
  4. Contracting-Out (Current Model):
    This model is the current system, where tenants automatically have statutory security of tenure unless they contract out of it. The tenant and landlord agree beforehand that the tenant will not have the right to renew the lease.

Implications for Commercial Landlords and Agents

  • For Landlords:
    If the mandatory security of tenure model is adopted, landlords may have less flexibility to adjust their tenancy arrangements. On the other hand, if the law moves towards abolishing statutory security, landlords would gain more control over their leases but could face instability and potential loss of tenants who value long-term arrangements.
  • For Tenants:
    Tenants may benefit from a more predictable and secure rental environment under mandatory security of tenure. However, if the statutory right is abolished, tenants could face increased uncertainty when their lease expires, as landlords would have more freedom to terminate leases or increase rents.
  • For Agents:
    Changes in how commercial leases are structured could require significant adjustments in how agents manage leases and advise clients. Agents would need to stay informed about which option is chosen and help both landlords and tenants navigate the new terms for renewal or termination of leases.

Conclusion

The Law Commission’s review could mark the beginning of significant changes to the way commercial leases are managed in the UK. Depending on the direction the government takes, it could lead to more security for tenants or increased flexibility for landlords. The consultation is ongoing, and it is crucial for both landlords and agents to stay updated on these developments, as they will affect how commercial properties are leased, managed, and renewed in the future.