Proposed changes to security of tenure for commercial landlords and tenants

The current law

Part II of the Landlord and Tenant Act 1954 (the Act) provides tenants of commercial properties in England and Wales a statutory right, subject to still being in occupation and the tenant’s business continuing at the end of the term, to renew their lease on materially the same terms (save as to rent). This is often known as security of tenure. 

A landlord can refuse to renew a lease under the Act only in specific circumstances. These are classed as fault grounds (such as arrears of rent and the property being in disrepair) and no fault grounds (such as the landlord’s intention to redevelop or occupy the property). 

If the tenant requests a new lease and it is not granted based solely on no fault grounds, compensation is payable to the tenant. The compensation calculation is based on the length of occupation by the tenant at the property and a multiplier of the rateable value of the property. 

Prior to entering in to a lease, the security of tenure provisions of the Act can be excluded (known as opting out). If the correct process is followed, the tenant loses their right to automatically renew and any renewal would be subject to negotiation. 

Proposed changes to the law

On 28 March 2023, the Law Commission initiated a review of the Act and is set to publish a consultation paper by late 2023.

The Law Commission’s starting point seems to be the Act, in its current form, is not working for either landlords or tenants. The Law Commission state that aspects of the law are “burdensome, unclear and out-of-date” and note there are delays and cost implications for both parties in following the procedures contained within the Act. It is also widely recognised that the provisions of the Act are widely excluded from leases, meaning the very intention behind it (to provide tenants with security of tenure) is in fact lost. 

The Commission intends to modernise the law by:

  • ensuring the relevant legislation is useful to both landlord and tenants so both parties use the legislation, rather than opt out, but without limiting the right for parties to reach their own agreement;
  • making sure it is fit for today’s commercial market with a view to regenerating high streets and town centres and also taking in to account wider government priorities such as the “net zero” and “levelling up” agendas; and
  • promoting a productive and beneficial commercial leasing relationship between landlords and tenants.

Any changes to the Act could potentially see a major change in commercial landlord and tenant law and will therefore be something the market will be keeping a close eye on. 

How Moore Barlow can help

For now, the Act continues as it has done for many years.

If you are looking to let your commercial property or take a lease of a commercial space, whether it be an office, restaurant, retail unit, factory or warehouse, it is important to take legal advice to understand not only the implications of the Act, but also the other terms lease and other transaction documents being entered in to. 

Get in touch with our commercial property team with your questions.