Security of Tenure for Business Tenants – Law Commission Consultation on Changes

The radical option would be to introduce automatic protection for all business leases. The LTA 1954 was originally designed as a mandatory scheme, the opt-out provisions only being introduced in 1970.

This approach would have a significant impact on the commercial lettings market and development prospects. It seems unlikely that the Law Commission will recommend such extreme change.

At the other end of the scale the government could remove security of tenure completely. This would avoid the costs, delays and uncertainty associated with the current statutory procedures for excluding security of tenure and recovering possession of premises that are protected by the regime. Tenant requirements for security could be met through the negotiation of contractual renewal options or longer terms with break rights.

A contractual arrangement can offer greater flexibility for parties to update the terms of the renewal lease and freshly negotiated leases are more likely to reflect modern priorities and are difficult to accommodate within a statutory framework.

Full abolition would significantly weaken the position of tenants, shifting the burden to tenants seeking advisers to negotiate robust contractual renewal processes. Smaller businesses, in particular, are likely to be disadvantaged as they often cannot afford such advice.

An alternative to complete abolition is to provide an ability to opt in to a statutory regime.

This removes contracting-out burdens and is likely to help avoid leases becoming protected due to process failings. Tenants who do not obtain advice in relation to their lettings may be disadvantaged by such a system, although arguably, the ‘natural’ understanding of a lease is that it will end on the final day of the specified term.

It is difficult to see how this really improves on the compete abolition model for most tenants, who would be unlikely to have the bargaining power to insist on contracting in, and of course could be dealt with by way of contractual renewal options as mentioned above.

Dependent of course on the findings on the first consultation process the most likely scenario is that the current high-level model will be retained, so business tenants will continue to benefit from security of tenure unless parties have agreed to contract out. This has the benefit of being a known quantity, with the consultation considering a review of processes to eliminate/reduce some of the troublesome aspects of the existing regime, such as simplifying the processes for contracting out and court applications on termination/renewal. However, significant changes would be needed to address ‘accidental’ secure tenancies and to allow full modernisation of renewal leases.

In addition to seeking views on the overarching framework, the consultation also explored whether existing exclusions should be extended.

It would make sense to require a written tenancy agreement before security can be obtained, avoiding some of the more unfair outcomes for landlords under the current regime.

Making it easier for landlords (and cheaper for tenants) to agree on short tenancies of one or two years is also a reasonably straightforward and practical modification. The current minimum term required for a tenant to obtain security of tenure is just six months. Extending this to perhaps say five years would ensure that tenants who demonstrate a reasonable level of commitment to the premises obtain a right to renew and encouraging landlords to keep what may otherwise be empty premises in use for as long as possible.

Another option is restricting the operation of the regime to particular types of premises. Allowing security of tenure only for certain use types (such as retail, hospitality and leisure, which are particularly dependent on location) is a model that is used in other jurisdictions, but precise scoping would be required.

Other suggested criteria to tailor the LTA 1954 more precisely include rent, size and location.

Reforming the scope in any of these ways could potentially reduce perceived injustices, delays and costs associated with the current regime, but on the other hand significant alterations could also add complexities and uncertainties and see more parties heading to court as the effect of the new rules is tested. Additionally, as commercial market conditions continue to evolve, the rules would need to be updated more frequently to ensure continued alignment with the market. The Commission is likely to need compelling evidence before it recommends substantial changes to scope, stating that “while reforming the scope of the 1954 Act might technically be possible, we do not think it should be undertaken lightly”.