Further Reform Ahead? The Law Commission’s Second Consultation on the Landlord and Tenant Act 1954

The Second Consultation Paper

The second consultation paper looks at some important practical issues for landlords and tenants, including which leases should be protected, how renewals work, when landlords can oppose a new lease and who can serve notices after a property is sold.

The key proposals are summarised below.

The Qualifying Criteria – Which leases will be protected?

The first, and arguably most important, part of the consultation looks at whether the qualifying criteria should change. In simple terms, this is about deciding which types of business leases should give tenants security of tenure and which should not.

At the moment, fixed-term tenancies of 6 months or less are not protected by the LTA 1954. If a fixed-term tenancy is longer than 6 months, the landlord and tenant usually need to contract out if they want to make sure the tenant does not have security of tenure.

Periodic tenancies can also be protected if they satisfy the legal test. Broadly, this means the tenant must be occupying premises for the purpose of running a business. This can be a concern for landlords who allow tenants into occupation on a short-term or informal basis without full lease documentation in place.

The Law Commission has suggested two possible options:

1. Tenancies can only be protected if granted for a fixed term of 2 years or more; or
2. Tenancies can only be protected if granted for a fixed term of 1 year or more.

The Law Commission has also proposed that all periodic tenancies, meaning tenancies without a fixed end date, should fall outside the LTA 1954. However, where a tenant stays in occupation after a fixed-term lease expires, that position would remain protected.

Whether this is good news depends on which side of the lease you are on. Landlords are likely to welcome clearer rules on periodic tenancies, as disputes often arise over whether an arrangement is a lease or a licence. Tenants occupying under a periodic tenancy may feel less secure, as they could face eviction on relatively short notice.

Contracting Out – Could contracting out become simpler?

The proposals on contracting out are designed to make the process easier. At present, landlords usually need to serve a warning notice giving 14 days’ notice. Alternatively, the parties can use a shorter period if the tenant, or someone authorised by the tenant, swears a statutory declaration.

The second consultation paper suggests a simpler approach: allowing the warning notice and the tenant’s declaration to be included in the lease itself, rather than requiring separate notices or declarations.

This is likely to be welcomed by both landlords and tenants. It would make the process more straightforward and keep the key information in one place. Tenants would no longer need to visit an independent solicitor to swear a statutory declaration, and their current solicitor could advise them on the effect of contracting out.

Opposing renewals – When can a landlord refuse a new lease?

At present, a landlord can only bring a protected business tenancy to an end if they can rely on one or more of the statutory grounds in Section 30(1) of the LTA 1954. Some of those grounds are based on tenant default, such as a breach of lease or late payment of rent. Others focus on the landlord’s plans, such as redevelopment or owner occupation.

If the landlord relies on the latter, they will be liable to pay the tenant statutory compensation which can be either 1x or 2x the rateable value of the property depending on whether the tenant has been in occupation for 14 years or more.

Ground F (which is the landlord’s intention to redevelop the property) is one of the most commonly used grounds by landlords and can also be the most commonly litigated. The Law Commission’s proposals seek to:

• Expand Ground F to include “modern construction methods” which can include those for environmental purposes;
• Replace the method of assessing the scope of works with a single “substantial works” test.

It is not clear how this will impact the process. For any issue which is heavily litigated, it often needs to be tried and tested in the courts before we are fully aware of the pros and cons.

Further, the consultation paper is also considering whether to change the compensation method to change the 14 year threshold. This could include stepped increases or an option to abolish compensation for shorter tenancies.

As mentioned above, opposing lease renewals often lead to litigation. The paper considers changing the prescribed method of dispute resolution. This could be moving to the High Court or allowing the Tribunal to deal with disputes.

The Registration Gap – Buying a property: who can serve notices?

One question we are often asked is: ‘I’ve just purchased a property; can I serve a Section 25 notice?’

More often than not, the answer is ‘no’ because the incoming purchaser is not the registered owner of the property – the gap between purchasing a property and becoming the registered owner is called the “registration gap”. With increasing delays at the Land Registry, the registration gap feels like it is growing and getting longer for landlords.

During the registration gap, new purchasers are not the legal owners of the property so they will either need to wait for registration to complete, or rely on the seller to cooperate and serve notices on their behalf.

The second consultation paper proposes three options which may give equitable owners the legal right to serve and receive notices under the LTA 1954. The paper also proposes a method for incoming landlords to give information to tenants to explain that their landlord’s interest has been sold or assigned.

This will feel like a welcome amendment for landlords and tenants who can face uncertain periods in between purchasing a property and registration. Tenants may be paying rent to a new landlord but face confusion over who to serve legal notices on as the title register still shows a former landlord as being the legal owner.

Any change relating to serving notices will need to have strict provisions/time limits on incoming landlords properly notifying tenants on the transfer/assignment and providing contact details. Disputes may arise where incoming landlords fail to properly disclose their interest to tenants.

How we can help

The proposals are not a wholesale replacement of the LTA 1954, but they may still significantly affect short-term occupation, contracting out, redevelopment opposition, and service of notices and key documents. Landlords and tenants will both be impacted if these changes lead to statutory reform.

Commercial tenancy renewals and termination can often become litigious. We act for both landlords and tenants in advising on renewal and termination of commercial tenancies.

We can advise on your rights depending on your aims and objectives and assist with finding a resolution.

If you would like to read the full paper, a link can be found here: Business tenancies: the right to renew – Law Commission