The Legal View: the lease renewal process for commercial landlords and tenants is under review

The Law Commission has announced that it will be carrying out a review of the Landlord and Tenant Act 1954 (the 1954 Act), which deals with statutory lease renewals for commercial landlords and tenants.

The legislation is 70 years old and was initially implemented to provide protection to business tenants following the Second World War. However, there are concerns that the regime is unnecessary and no longer fit for purpose in the current economic climate. No similar protections exist in Scotland so why retain it for the remainder of the UK?

Under the current regime, commercial tenants can remain in occupation of leased premises once the contractual term expires, provided they are still carrying out their business. Tenants then automatically have rights to renew their lease, which they can do so by serving a notice on their landlord requesting a new lease. Likewise, landlords can also serve a similar notice either requesting a new lease be granted or opposing the grant of a new lease (the latter is only available on certain grounds, such as the landlord’s plan to redevelop). The regime applies unless the landlord and tenant have contracted out of the 1954 Act at the grant of the tenancy.

Following COVID and the current economic difficulties, there is particular focus on how the Law Commission will deal with how new rents are agreed in renewal leases under the 1954 Act regime. Currently, rent under a renewal lease is set at market rent (with limited statutory disregards). However, due to change in footfall in certain areas following the blend of home and office working, it is likely retail tenants in particular will want to see turnover rents being introduced into any new regime proposed by the Law Commission.

Where landlords and tenants cannot agree lease terms, either can issue proceedings in the County Court, which can be costly and cause significant delay. As such, there have been calls for the Law Commission to fully extend the involvement of The First Tier Tribunal (FTT) as a more appropriate forum for proceedings, given the judges have more specialist property experience and presently faster turnaround times.

Furthermore, there has been criticism on the administrative burden landlords and tenants face under the current regime. For example, the relatively frequently used contracting out process at the grant of a lease currently involves a statutory declaration. This process certainly could be simplified with a more informal procedure that involves less costs and administration – such as electronic signatures.

The Law Commission’s consultation paper is expected at the end of the year. Given any new regime is likely to have a significant impact on landlords and tenants, it will be interesting to see how the Law Commission addresses the various issues the current regime poses and how far it takes its proposals for reform.

Published by BusinessLDN.