The Landlord and Tenant Act 1954 (the 1954 Act) is a piece of legislation governing the relationship between landlords and business tenants in England and Wales. It has been in place for 70 years and, although tweaked over the years, has not been significantly reviewed since 2002.
In March 2023, however, the Law Commission of England and Wales announced that it would be undertaking a wide-ranging review of the 1954 Act to foster “a productive and beneficial commercial leasing relationship between landlords and tenants.”
A consultation on the 1954 Act was launched as part of the Ministry of Housing, Communities and Local Government’s wider initiative to revitalise high streets and town centres, with the aim to make the legislation fit for the 21st century.
Last year (19 November 2024), the Law Commission published its first consultation paper which forms part of their two-part review of the 1954 Act.
So, what can we expect from the reform? Will it bring true modernisation of the leasing dynamic between owners and occupiers of commercial property, or could it be a recipe for disaster?
Matt Doe, a partner in the lease advisory team at Vail Williams, explores.
Today, aspects of the 1954 Act have become unclear and out of date, and this is preventing the commercial property market from moving at a rapid and efficient rate.
Reforming it represents an important opportunity to support the efficient use of commercial space, whilst promoting a constructive and mutually beneficial leasing relationship between landlords and tenants. It needs to balance the needs of both businesses.
A lot has changed in the last 20 years since the 1954 Act was amended, and we see this as an opportunity to create a more balanced picture for both landlords and tenants, based on what happens in the ‘real world’ when negotiating lease renewals, rather than founded simply on a legal process.
What are the shortcomings of the current system?
Limitations of security of tenure
Landlords have long argued that the right to renew makes it too difficult to redevelop their properties or to let them to new tenants, with the prospect of paying statutory compensation prohibitive. Tenants believe that this right is essential for their businesses to thrive, as it allows them to invest in their premises and build relationships with customers.
Overly complicated contracting out procedure
The current procedure requires a landlord to serve a warning notice, with the tenant making a simple or statutory declaration. The process remains relatively complex for the majority of occupiers, and could be simplified. The consultation report published in November explores a range of options to address this, including the potential to ‘opt into the Act’ rather than ‘contracting out’?
Streamlining and acceleration of lease renewals
The process of lease renewal can take months, if not years, before a new agreement is in place. This process has to change in order to provide certainty for both landlords and tenants, as well as to reduce the often significant level of costs involved.
The courts are already overburdened and the speed at which they can deal with lease renewals does not match the fast pace of modern business and the property market.
More Alternative Dispute Resolution (ADR)
It can take some time to reach an agreement between landlords and their tenants. This can be overcome by making more use of methods such as PACT (Professional Arbitration on Court Terms). These are currently underutilised and need to be promoted to both landlords and tenants, with more arbitrators and independent experts available to deal with such matters.
Not enough collaboration
Sometimes it can be the case that Expert Witnesses adopt extreme negotiating positions, which can create further delays in reaching an agreement between a landlord and tenant. There needs to be more incentive for landlords and tenants to engage and collaborate as early as possible in the lease renewal process – it really does pay to talk.
More clarity needed around common areas of disagreement
Often it is the same points of discussion which come up time and again at lease events, leading to disputes and delays. Clarity is required for issues such as the correct approach to the assumption of a lack of a rent-free period for fitting out, for example. With clarity and clear communication, often these challenges can be overcome quickly.
Update the Act to address ESG and Green Leases
A landlord cannot oppose a lease renewal on the grounds that the property does not meet minimum EPC standards. But they are required to improve the property in order to grant a new lease.
Should the 1954 Act include energy efficiency as grounds for opposition? Should the tenant be obligated to provide the landlord access to undertake energy upgrade works? The 1954 Act needs to ensure that all properties meet their energy efficiency requirements, so we expect more on this to come.
What can we learn from the first consultation?
In the meantime, the first consultation paper has been published and focuses on the issue of security of tenure and what sort of security commercial tenants should have in today’s commercial leasehold market.
