The Law Commission is reviewing Part 2 of the Landlord and Tenant Act 1954 (LTA) to “ensure that it works for today’s commercial leasehold market.”
In what it describes as a wide-ranging review, the Commission will “consider in detail how the right to renew business tenancies, set out in Part 2 of the Landlord and Tenant Act 1954, is working and will consider options for reform.”
The Commission has published a first Consultation Paper, a summary and a survey. You can respond to the Consultation Paper here and to the survey here by 19 February 2025.
The Landlord and Tenant Act 1954 was brought in to protect business tenants from landlords who previously could evict them without warning. The Act was created in response to what was perceived as an imbalance of power between commercial property landlords and their business tenants in the period following World War II. At the time there was a shortage of commercial property.
The main feature of the Act is, it gives Security of Tenure to the business tenant.
Business tenants have the right to remain in their premises until the lease is either renewed or terminated in accordance with the provisions of the Act.
Tenants have a presumed right to renew on similar terms and at the current market rent unless the lease can be terminated, but only on specific grounds set out in the Act. The tenant can terminate at will as the contractual term ends, but if the lease is terminated by the landlord, the business tenant may be entitled to financial compensation, the amount as defined by the Act.
One ground for refusing to renew the lease is if the landlord has owned the property for at least five years. In this case they can refuse a tenant’s renewal request if they intend to occupy the property themselves.
Other grounds for ending the commercial lease include:
The Landlord and Tenant Act 1954 applies to leases granted to tenants for business premises. However, there are some exceptions, such as contracted out tenancies.
When does the Landlord and Tenant Act apply
If these provisions are met the tenant will have security of tenure under the provisions of the Act, unless the tenancy was contracted out – see below.
Street v Mountford is a famous English test case that sets out principles used to determine whether a property is occupied under a lease (a tenancy) or it is occupied by way of a licence. The difference can get complicated but in simple terms a lease is the grant of a right to occupy premises for a period of time at a given rent with “exclusive possession”, so the tenant can exclude everyone from entry including the landlord – they in fact have a title in the land for a specific period of time (the lease term).
A licence is when the licensee is given specific permission (the licence) to use the owner’s property. In this case there is no title in the land and no right to exclude others. A licence is difficult to sustain legally as the major test is that the owner must still have full control and access to the whole of the premises at will. This situation is no different than that for a guest who stays in a hotel.
The lease v licence and contracting out aspects of the occupation of commercial premises are very important considerations as to whether a landlord or tenant could either inadvertently give security of tenure to a tenant or conversely a tenant may enter unknowingly into a licence, when they desired the security of a lease. The parties should always seek legal advice from a specialist property solicitor.
The Landlord and Tenant Act doesn’t apply to a business tenancy that is six months or less, unless the lease allows for an extension. The security of tenure provisions doesn’t apply to all 6 month or less short-term tenancies.
Also, the LTA doesn’t apply in several other situations, like licences as mentioned, agricultural tenancies, tenancies at will, and the contracted-out tenancies already mentioned.
The Act has been of late criticised for not reflecting the current commercial leasehold market. Some claim that the Act no longer suits the current commercial market conditions. They argue that the process of managing tenancies under the act has become more difficult because the court system is now too slow, much slower than it was in 1954.
In December 2020 the government announced a review of the Act, but the review was put on hold due to the pandemic. In April 2023, the Department for Levelling Up, Housing and Communities commissioned a Law Commission review of the Act.
All businesses need suitable premises in which to operate. Often businesses need to move premises because their business has outgrown the building, or when business has contracted, so they need to downsize, or they may need to move to a different location.
For these and financial reasons, businesses such as shops, offices, warehouses and factories usually prefer to lease their premises rather than buying and owning them freehold.
Part 2 of the Landlord and Tenant Act 1954 gives business tenants the right to renew their tenancies when their lease comes to an end. This allows businesses to remain in their premises in a location where their customers know them and when they have built-up goodwill. This legal right to a new tenancy is referred to as “security of tenure”.
Most business tenants will have an automatic right to renew under the Act unless, that is, they agreed to waive this right before they signed the lease. In this case they would have agreed with their landlord that the right to renew would not apply to them. To do this the parties must follow a strict procedure prior to signing the lease known as “contracting out” or it is sometimes called renting “outside of the Act”.
A tenancy at will is a temporary agreement between a landlord and a tenant that can be terminated by either party at any time. It's usually used for short-term arrangements, such as when a tenant needs early access to a property or when negotiating a longer-term lease.
There’s no security of tenure with a tenancy at will. It doesn't provide the tenant with the same security as a fixed-term lease. Termination can be affected by either the tenant or the landlord and the agreement can be terminated at any time by giving immediate notice.
A tenancy at will can be either informal or in writing, but there are dangers here, legal implications which landlords and tenants should consider. To prevent a tenancy at will inadvertently resulting in security of tenure, legal advice should be sought to ensure that all parties are protected.
Where a commercial lease is granted under the LTA there are technically two tenancies: there’s the contracted term and the statutory follow-on term. To bring the statutory lease to an end the landlord must serve a section 25 notice, whereas the tenant serves a section 26 notice.
If the statutory lease is not brought to an end by service of the relevant notice, which must be served on the other party no less than 6 months and no more than 12 months before the landlord or tenant wants to bring the lease to an end. Then the existing lease will carry on after the contractual term ends, until the expiry of the relevant notice. Alternatively, until the parties enter a new lease. The statutory continuation of a lease is known as “holding over”.
The legal framework in the Act is almost 70 years old. The Act has been updated along the way to improve flexibility and reduce the burdens on landlords and tenants associated with its operation, but it is now around 20 years since the last significant updates were made.
The commercial property market has changed considerably since the Act was last reviewed, most notably with the rise of the internet which has led to a dramatic increase in online retail and services.
Landlords and tenants have been impacted by other world events including the financial crisis of 2008, the Covid-19 pandemic of 2020-2021 and working from home. Other priorities have also evolved during this time with a focus now on the environmental sustainability of commercial properties.
It has been increasingly reported to the Government and the Law Commission that the Act is not working well for landlords or tenants. Landlords and tenants report that the Act’s procedures are increasingly burdensome, unclear and out-of-date in the modern commercial property market.
Those concerned with using the provisions of the Act complain that it is standing in the way of modern commercial practices, causing unnecessary cost and delay for both landlords and tenants, and preventing commercial space, such as in high streets, from being occupied quickly and efficiently.
More often it is becoming the practice for landlords and tenants entering business tenancies decide to contract out of the Act, which removes the tenant’s right to renew that the Act would otherwise give them.
The Law Commission by the then Department for Levelling Up, Housing and Communities in March 2023 was announced as part of the then Government’s Anti-Social Behaviour Action Plan.
The terms of reference were as follows:
The consultation period for the first Consultation Paper will run for 3 months, closing on 19 February 2025.
You can respond to the consultation online by clicking here. The Law Commission encourages responses to be made online, but if you wish to submit a response by post or email then see page one of the first Consultation Paper or page 3 of the summary for details.
You can respond to the survey here. Your answers to the survey will be analysed separately to any consultation response, says the Law Commission.
For general enquiries, or to be added to the LC email list, contact them by email at: businesstenancies@lawcommission.gov.uk
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