The Landlord and Tenant Act 1954, a cornerstone of commercial property law in the UK, is currently under review. The consultation period was open from 19th November 2024 to 19th February 2025 when stakeholders were invited to weigh in on proposed reforms aimed at modernising this pivotal legislation. We spoke to Associate Partner, Nigel Fishwick to explore the potential changes and their implications and it becomes clear that both landlords and tenants must prepare for a shifting landscape.
At its core, Part II of the Act provides business tenants with security of tenure, granting them the right to renew their tenancies upon expiration, unless they have agreed to opt out. This security is a double-edged sword, offering stability for tenants if they have adhered to the covenants set out in their lease, while imposing certain constraints on landlords in relation to how they can terminate a tenant’s business tenancy.
Part II of the Act also outlines mechanisms for opting in and out of this security.
Tenants automatically have the right to renew their lease on expiry unless they have agreed to exclude this right (“opted out”), while landlords can exclude the tenant's right to renew, this must be done formally by serving a standard form of notice (Statutory Declaration) on the tenant which the tenant must formally accept.
This is the first phase of the Law Commission’s reform of the Landlord and tenant Act 1954 Pat II which affects Business Tenancies, this project focuses on security of tenure. It will later be followed by a more technical consultation, which will explore the detail of how the recommended model should work.
The consultation is exploring several potential reforms to bring the Act in line with contemporary commercial realities:
Security of Tenure Models: The current "contracting-out" model is under scrutiny, the following options are being considered:
- No security of tenure (abolish the 1954 act).
Tenants would no longer have a right to renew at the end of their lease, but the parties could agree an option to provide security. Minimum tenant protection.
- A contracting in regime.
The default position is that tenants would not have security of tenure, however the landlord and tenant can agree to “opt in” so that the tenant does have security of tenure.
- “A contracting out” regime (The Current Position). Essentially leave the Act as drafted.
The default position is that tenants do have security of tenure, but the landlord can “opt out” to remove this security.
- Mandatory Security of tenure.
Security is compulsory and neither party can contract out of the security of tenure regime. Maximum tenant protection.
Each option presents unique benefits and challenges, requiring careful consideration of their long-term impacts on the market.
Types of Tenancies: The review is also assessing whether the types of business tenancies that benefit from security of tenure are still appropriate. This could lead to a more tailored approach, ensuring that the Act better reflects the diverse needs of modern businesses.
The proposed changes bring both opportunities and challenges for landlords and tenants alike:
For Landlords:
- Administrative Burden: The current system is often seen as complex and burdensome, potentially delaying lease completions whilst increasing legal fees. Simplifying these processes could streamline operations and reduce costs.
- Opposition to Renewal: Landlords currently face difficulties in opposing renewals under the statutory grounds. Reforms could provide clearer, more flexible criteria, balancing the rights of landlords and tenants.
For Tenants:
- Understanding Rights: The complexity of the opt-out procedure can be detrimental if not followed correctly. Simplifying these processes could enhance tenant awareness and compliance.
- Market Adaptation: The Act may not fully reflect the needs of the modern commercial leasehold market. Updating the legislation could provide tenants with more relevant protections and opportunities.
As the consultation progresses, it is crucial for all stakeholders to engage actively. The goal is to create a balanced framework that supports both landlords and tenants, fostering a dynamic and resilient commercial property market. By modernising the Landlord and Tenant Act 1954, the hope is that it can remain fit for purpose in the 21st century, addressing the evolving needs of businesses and property owners alike.
Once the Law Commission has analysed the responses and reached conclusions it is expected that a second technical paper will be issued for consultation which will consider the broader detail of how the preferred model and any change in its scope would actually work.
Currently, no timing has been provided for the second consultation paper, this will only be confirmed once all the analysis of the responses to the first paper has been concluded. Click here to learn more about the journey so far.
Fisher German will keep providing updates on this topic and our experts are available should you have any concerns or questions that you would like to discuss in more detail.
