Changes may be coming to business tenancies: What you need to know

The Law Commission has released an interim update on proposed changes to business tenancies currently governed by the Landlord and Tenant Act 1954. These reforms could reshape how commercial landlords and tenants manage lease agreements. We explain what you need to know.

What’s this all about?

The rules governing most business leases are set out in the Landlord and Tenant Act 1954 (“the 1954 Act”). This law gives certain commercial tenants the right to remain in business premises after the lease term has ended and to request a new lease when the fixed term ends. This is known as “security of tenure”. There is a widely held view that the system is outdated, which has resulted in the Government asking the Law Commission to look at ways to modernise it.

Earlier this year, the Law Commission conducted a public consultation, seeking feedback from landlords, tenants, lawyers, and property professionals. It received more than 160 responses, and the interim statement released this month shares what they have learned so far.

Key takeaways

1. Most people want to keep the “opt-out” system

Right now, landlords and tenants can agree to opt out of security of tenure provisions when a lease is entered into. This flexibility is seen as important for businesses and the market. The Law Commission agrees and has indicated this should stay in place.

2. No major change to who’s covered

Some tenancies, like agricultural ones, are not covered by the 1954 Act. Most people said this makes sense and should not change. The Law Commission is inclined to leave this as it is.

3. Rethinking short-term leases

Currently, only leases lasting more than six months fall under the 1954 Act. The Law Commission is now considering consulting on raising that limit to 2 years. This could mean that fewer short-term tenants will benefit from security of tenure and renewal rights.

What’s coming next?

Later this year, we will see a second consultation paper with more detailed proposals. We expect further discussion on:

• how to simplify the opt-out process
• better ways to resolve disputes
• when a landlord can refuse to renew a lease
• how compensation works
• what happens during the gap between lease expiry and renewal.

Following the second consultation, the Law Commission will publish its final recommendations. Any changes to the law would then need to be approved by Parliament, so it will be some time yet before the reforms are finalised and enacted into law.

What does this mean for you?

If you are a Landlord:

• The current opt-out rules are likely to stay, but whilst this is being decided, if you intend for a new lease to be outside of the 1954 Act, you must make sure you follow the correct statutory process to opt-out.
• If the threshold goes up to two years, fewer short-term tenants will qualify for the 1954 Act’s provisions. This may give more flexibility for shorter, modern leases.

If you are a Tenant:

• A higher threshold would mean more tenants will not be entitled to remain in the premises beyond the fixed term of the lease without entering into a new agreement and will not be able to request a new lease.
• It is likely you will still be able to opt-out of the 1954 Act rights, but you should ensure you get expert advice before signing anything to understand exactly what you are agreeing to.

Our view

These proposed changes aim to make things simpler and fairer for everyone involved in commercial leases. Whether you are a Landlord or a Tenant, now is a good time to:

• review your current lease agreements
• stay informed about the upcoming second consultation
• talk to a legal expert about how the changes could affect your plans.

Contact our Property Disputes solicitors today

For further insights or assistance regarding business tenancy reform, please get in touch with our specialist Property Litigation team by using our online enquiry form or calling 0330 404 0738.

Disclaimer: This article provides a summary of developments and does not constitute legal advice. For specific legal guidance, please contact a member of Ashtons Legal.