It has been 20 years since Part II of the Landlord and Tenant Act 1954 was updated, and there have long been calls for further reform.
The Law Commission has indicated that it will publish a consultation paper as soon as possible in 2024. In the meantime, the Property Litigation Association (PLA) has extensively consulted its own members to identify what changes are needed and where.
The PLA surveyed members and found they are overwhelmingly in favour of preserving security of tenure rights for tenants. However, their opinions differed about the leases to which the act should apply.
As it stands, the 1954 Act applies to all leases except those of six months or less and those that have been expressly contracted out. Some PLA members suggested that the scope should be widened to include a broader range of leases, so that the act is used as standard and there is less room to contract out.
The UK government also seems keen that, after any reforms, the legislation is more widely used and that fewer parties contract out of it.
The Law Commission could consider automatically applying the act to all leases lasting longer than – for example – five years, or to properties in certain sectors where goodwill is particularly valued, such as retail or hospitality.
However, this would be a radical move, and any changes the Law Commission considers will surely need to be balanced against parties' freedom to contract out of the act.
One of the main challenges of the act is its complexity, and there are various parts the Law Commission may review in order to simplify it.
While the idea of security of tenure is straightforward, the act's provisions themselves are very technical and, as a result, a complex body of case law has emerged over the past 70 years that can be difficult to navigate.
To address concerns about complexity, the commission could also limit the application of the act to written leases alone, as the Electronic Communications Code 2017 does. This would prevent the legislation from catching periodic tenancies that arise informally.
The commission could also consider codifying in the act some of the principles that have been established in case law. However, doing so would run the risk of creating yet more complexity – and even unintended consequences – prompting a host of further cases to establish exactly what any new rules would require.
One of the areas that PLA members flagged as being needlessly cumbersome was the contracting-out process. The process was amended by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 when the requirement for a court order was removed, and a notice-based process was introduced.
While this was a welcome change, the current procedure – under which a landlord must serve a warning notice on a tenant, who must then make a simple or statutory declaration confirming they understand they are giving up rights to security of tenure – could still benefit from being simplified.
Members also noted that the need to serve a physical notice means that a procedural error – such as serving the notice using the wrong process, or on the wrong entity, or at the wrong address – could inadvertently lock landlords into protected leases.
It also leads to uncertainty about whether repeated notices are required where minor changes are made to the lease after the original notice is served.
One option that the Law Commission could consider is allowing warning notices to be served by email and signed electronically, which could streamline the process and make it more accessible.
Another option would be to remove the requirement for a warning notice altogether, and simply require a statement acknowledging that rights to security have been relinquished on the face of the lease itself.
'One option the Law Commission could consider is allowing warning notices to be served by email and signed electronically to streamline the process and make it more accessible'
Another challenge – although not unique to lease renewal proceedings – is court delays for both opposed and unopposed renewals, which can make these needlessly protracted. PLA members identified procedural delays as a key area for improvement.
To address such delays, the Law Commission could consider imposing a pre-action protocol for lease renewals, requiring the parties to engage early with a view to resolving disputes before they get to court.
The commission may also give serious thought to whether the courts remain the right forum for such disputes. One option would be to give the First-tier Tribunal (FTT) jurisdiction to deal with unopposed lease renewals, as was successfully trialled in a recent pilot at the Central London County Court.
However, the Law Commission would need to ensure this does not overwhelm the FTT by simply transferring the current court backlog to it. To safeguard against this, the commission could consider allocating straightforward, unopposed claims to the FTT, with more complex opposed renewals and higher-value unopposed renewals going to the county courts or High Court.
Another more radical option could be to move away from court determination altogether and create an arbitration process for lease renewal disputes, inspired by the COVID-19 rent arrears scheme.
While a voluntary route to arbitration already exists through PACT (Professional Arbitration on Court Terms), this has not been as well used as the Law Society and the RICS – who established the scheme – had hoped, so establishing a mandatory arbitration scheme in some circumstances could help streamline the process.
To establish a consistent approach and a body of case law, arbitration would need to take place in a public forum and all awards should be publicly available.
Appointing specialist arbitrators would also mean those with appropriate expertise could determine such disputes. For example, a chartered surveyor could be appointed as arbitrator where the dispute relates only to rent.
In anticipation of the Law Commission's forthcoming consultation on reforming the 1954 Act, RICS is engaging with members and the commission itself as well as other vital stakeholders, to ensure that commercial real estate is used fairly, effectively, and efficiently.
We recently hosted a webinar on the subject attended by more than 700 participants, during which we discussed the potential changes as well as the current challenges presented by the act and the opportunities offered by reform.
The 1954 Act involves balancing a tenant's right to security of tenure against a landlord's freedom to deal with their property, which can cause challenges for both parties.
Some PLA members queried whether it is still appropriate for all tenants to receive statutory compensation when the landlord opposes the grant of a new lease on one of the no-fault grounds, such as redevelopment.
In a changing world, where leases are becoming shorter and bricks and mortar can be less crucial to business goodwill, the Law Commission may consider that the right to receive statutory compensation should be narrowed.
If so, there are a wide range of options, from abolition of statutory compensation altogether to tailoring the amount payable to the particular tenant.
This is currently calculated by reference to the rateable value of the property, but a bespoke statutory compensation regime could involve reference to annual rent, tenant profit or type of tenant, with only those for whom goodwill is more important – such as retail and hospitality – receiving compensation.
While such changes could address questions of fairness, they would introduce another layer of complexity – something from which practitioners are keen to move away.
'The Law Commission may consider that the right to receive statutory compensation should be narrowed'
It remains to be seen whether the commission will recommend retaining the basic structure of the act as it currently stands, but reform the detail – as PLA members seem to favour – or propose a more radical reimagining of security of tenure.
Whatever the commission does recommend, our members are clear that there is plenty of scope for improving the act. However, the need to effect change must of course be balanced against the risk of inadvertently creating more complexity and red tape.
Related competencies include: Landlord and tenant, Leasing and letting, Legal/regulatory compliance
With an extensive legal background and expertise in alternative dispute resolution (ADR), RICS' head of DRS research and development, Martin Burns, recently joined senior public affairs officer Dominic Collyer on the RICS Podcast to discuss the reforms, benefits of particular ADR methods, the relative underuse of the PACT process and much more.
Click the play icon below to listen.