Business Leases: Wholesale Reform (Potentially) on the Horizon!

This is an important moment for all involved in leasehold commercial property – landlords, tenants and property professionals alike. Wholesale change could be afoot. This is your opportunity to have your say and provide relevant evidence.

This consultation seeks to test the 1954 Act’s basic foundations – its “reason for being”. Is the current approach of giving business tenants security of tenure (i.e. a right to renew a business lease), subject to the ability of the landlord and tenant to “contract out” of that right, appropriate for a modern commercial leasehold market?

This consultation principally asks whether fundamental change is necessary or desirable. It seeks views on four possible future models of security of tenure and what impact a change to the current security of tenure regime will have on the parties to tenancies, their advisors and the wider commercial leasehold market.

1. No security of tenure (ie abolish the 1954 Act) : The tenant has no security of tenure, but the landlord and tenant can still agree a contractual option for a new lease.
2. A “contracting in” regime – The default position is that the tenant has no security of tenure, but the landlord and tenant can “opt in” to a security of tenure regime. This would be the opposite of the current entitlement of a landlord and tenant to “contract out” of security of tenure.
3. A “contracting out” regime – The default position is that the tenant has security of tenure, but the landlord and tenant can “opt out” of the security of tenure regime. This is the current position, but there could still be significant change to how the LTA 1954 currently operates.
4. Mandatory security of tenure – Security of tenure is compulsory. The landlord and tenant cannot agree to “opt out” of security of tenure.

The consultation also asks whether, if security of tenure is to remain, should the types of tenancy that it applies also change and should it matter which model of security of tenure is adopted?

The LTA 1954 does not currently apply to certain types of tenancy (eg farm business tenancies) or tenancies not exceeding a term of six months, save unless there is provision for renewing or extending beyond six months or the tenant has been in occupation for a period exceeding twelve months.

Should these qualifying criteria be modified and should further qualifying criteria for security of tenure be considered, such as the use made of the property, the size of the property, its location (eg in a town centre) or the rent payable?

Consultees are also asked whether any particular considerations apply to potential reform in Wales and whether changes to the current security of tenure regime and/or types of tenancy caught by it, could result in advantages or disadvantages to certain groups or individuals based on certain characteristics.

The commercial property market in the UK is thought to be worth around £900 billion with circa 55% rented. A change from the current security of tenure model is likely to shift the balance of power between landlords and tenants. There could be a big impact on the commercial leasehold market, with a period of heightened uncertainty and instability whilst any change beds in. Predicting how the market might react and whether that is desirable is difficult, and so the Law Commission is rightly looking for significant evidence that a different model of security of tenure should be adopted before making any recommendation for change.

The consultation is open until 19^th February 2025 and includes an option to simply complete a short survey focused on gathering essential data relating to leasing practice and how that might have changed over time.

After the consultation closes, the Law Commission will decide on its recommendations, following which it expects to publish a second, more technical, consultation paper.

If the recommendation is to be that security of tenure is to remain, this second consultation paper will consider how the proposed security of tenure model should work. Even if it is recommended that that the current “contracting out” regime is to be retained, there could still be proposals for significant reform.

If, however, the recommendation is to be that security of tenure should be abolished, then this second consultation paper will consider how that might be achieved.

Interesting times ahead and we at Ward Hadaway look forward to feeding into the next stage of the consultation process.