The Future of Commercial Property Leasing: The Impact of Reforms to the Landlord and Tenant Act 1954

Advice  |   7 July 2023

Written by
Kamran Chughtai, Solicitor

It’s been estimated that over half of all commercial property in the UK is rented. It comes as no surprise then that the Landlord and Tenant Act 1954 has been the cornerstone of the UK’s commercial property industry since it came into force over 65 years ago. However, it’s been nearly 20 years since its last reform and the legislation is now considered outdated by many industry experts. In response, the Government has commissioned a Law Commission review of the Act – and their consultation paper is due to be published later this year. So, what might potential reform look like, and how would it impact commercial landlords and tenants?

The Law Commission have identified that many landlords and tenants that enter into leases agree to exclude the tenant’s statutory right allowing them to renew their tenancy at the end of the contractual term, (known as ‘security of tenure’) – leaving many business tenants facing uncertainty as their lease comes to an end. To combat this, the Commission may suggest provisions that encourage parties to opt into the security of tenure regime. Such provisions could be making security of tenure automatic for all tenancies over a certain length, such as three years. Another potential change would be to widen the definition of short-term leases (which currently stands at six months) in an effort to have more parties agree to include the security of tenure provisions in their leases. It is a balancing act however, as even though landlords could still contest an automatic lease renewal on certain predetermined grounds, reform to this area of the Act could potentially see landlord’s power over their properties diminished.

A recent survey by the Property Litigation Association found that many agree there is an urgent need to streamline the leasing process under the Act in order to reduce costs and delays. One of the ways in which this could be done is reforming the process of contracting out of the Act. Currently, a landlord wishing to contract out of the Act must serve a statutory declaration on the tenant, with the tenant then having to swear that they understand the rights they are giving up in front of an independent solicitor. Whilst it is important for a tenant to take the time to understand the rights they are foregoing, if done incorrectly, the declaration could have no effect and the lease may inadvertently be subject to the Act. The introduction of an online system negating the need for statutory declarations could make the leasing process cheaper and more efficient, whilst still ensuring the tenant is aware of the rights they are giving up.

Since its introduction, the courts have been the main adjudicator for determining disputes with regards to the Act. However, with the courts being put under increasing pressures, increasing delays to cases are not unusual. The Law Commission may therefore consider imposing a form of pre-action protocol involving meetings between the parties and independent arbitrators in an effort to resolve disputes before they ever reach the courts.

Reform to the Act has thought to be needed for some time, and this recent announcement from the Government aiming to bring the legislation up to date with modern business practices has been welcomed by many in the property industry. If implemented, these reforms could simplify the process for lease renewals, reduce the burdens on courts, and provide greater protection for commercial tenants. With that said however, there are concerns that the proposals could tilt the balance too far in favour of tenants and could lead to increased litigation. The Law Commission will be taking feedback from the property sector over the course of the review, but whatever the reforms, they are likely to have far-reaching implications on landlords and tenants alike.

Thackray Williams has a specialist commercial property department with dedicated lawyers who can guide you through the current law and how any changes might affect you, whether as landlord or tenant. Call us today on 020 8290 0440.

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