The Law Commission consultation on reform of the Landlord and Tenant Act 1954 Part II
11 May 2025(2025 May) – The Law Commission having allowed me to contribute two days after the official end of the first Consultation, I ran out of time to address the LC’s questions, so said the following (edited):
…whenever instructed to act for a landlord or a tenant, I start by saying “it should be easy to explain what happens on a lease renewal, but it is not.”
On expiry of the contractual term, the tenant would have the right to apply for a new tenancy or no legal right to remain in occupation. Where there is no right, the contracting-out will either be in the lease or a separate document. Merely, because the lease contains a blank exclusion clause doesn’t mean that it is outside the Act.
It doesn’t make sense for an exclusion to be in one of two places. I would suggest in the lease. The fewer documents, the better. I do not understand why the need for the contracting-out procedure on its own; more sense to include it in the draft lease on a new letting to be effective on completion. The parties to a commercial contract, which is what it is, should be trusted to know what they are doing.
Before the law changed, the tenant had to give notice within 2 months whether it wanted to renew. Now that a tenant doesn’t, and because a tenant doesn’t have to communicate its intention in advance, a landlord has no idea whether the tenant wants to renew or not. The only way to force the pace is for the landlord to apply to the court. In my experience, generally landlords are reluctant to do that because it sets in motion the court case management proceedings. It would be better if the previous system were reinstated with the tenant having to give notice not within 2 months but with 3 months. The theory that negotiations for the renewal can be concluded in principle within 6 months doesn’t allow for a volatile market. I tend to leave negotiations until near to the end date of the notice, and when acting for the tenant rely hopefully on the landlord’s preference to extend the end date by agreement.
Whether a lease (tenancy) is inside or outside the Act depends upon the difference in bargaining power between the landlord and tenant. I have a private investor landlord client whose experience of his bank tenant playing the system resulted in the landlord having to refund about two years’ rent. The renewal took 5 years and 3 months to finalise for the grant of a 3-year lease. The bank has now announced closure – surprise, surprise. For a new letting, there is no way my client wants a new lease inside LTA54 as avoiding the LTA54 procedure is top of his list. I am recommending that the new lease is outside the Act, with the tenant having an option to renew.
The norm back-door method for transferring leases inside the Act to outside is when the tenant wants to sub-let. The underlease is to be outside the Act. Almost every draft lease nowadays would contain that requirement.
Small tenants and local traders like to have their leases inside LTA54 because bank loan criteria require a certain term of at least 8 years, so inside the Act makes the possibility more likely the tenant can sell their business as a going concern. Larger retailers and bigger companies aren’t so concerned because they think it would be unlikely for the landlord to not renew, because of the impact on the landlord’s investment. Inside the Act as a default where the Rateable Value is less than ‘x’ would be a good idea. Optional otherwise.
There are 3 ways to renew a lease where the tenant has renewal rights. 1. The formal procedure, statutory notice, etc. 2. Informal subject to contract. 3 Restructuring.
3 is normally proposed 2 or 3 years before the earliest date for the formal procedure, 12 months before the contractual term expiry. The advantage to both parties is to avoid the cost of court procedures. The advantage to the tenant is certainty of renewal. The advantage to the landlord, easier to remortgage the investment and a secure investment. Way 3 and 2 normally involve experienced parties, as the entire matter is subject to contract.
Renewal under the Act shouldn’t be as convoluted as it has become. The interim rent concept is nonsense. The renewal term should start on the date immediately following expiry of the existing term.
Where a renewal goes to substantive hearing in court, the tenant should not be allowed to discontinue. Mere responsibility for the landlord’s costs is not enough; the tenant vacating despite months of haggling is a sour experience for a landlord. If a tenant wants to terminate, then the last date for doing so should be on expiry of the existing lease, unless by agreement. Having a ‘by agreement’ provision would enable a temporary occupancy, pending relocation or whatever.
The statutory compensation on non-renewal at one or two times Rateable Value doesn’t amount to much for low RV premises. Landlords can avoid paying it altogether simply by including one or more of the noncompensatory grounds in the s25 notice. Unless the tenant confirms which ground it is not objecting to, the landlord can reason that no compensation is payable.
On balance, I think the default position should be inside the Act – but only if all or most of my suggestions are introduced. If not, then outside the Act will become the norm, by stealth.
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