Security of tenure – hold or fold?

In England and Wales, Part 2 of the Landlord and Tenant Act 1954 (“54 Act”) is a cornerstone of commercial leasing. However, following a first consultation published by the Law Commission of England and Wales (“LC”) last month, change may (or may not) be on the horizon and the LC are canvassing opinion from interested parties.

The current position

The 54 Act gives a tenant occupying commercial premises for the purposes of its business a statutory right to a new tenancy on expiry of the contractual term of its existing tenancy, if it wants to remain in occupation. This protection is known as “security of tenure”. Whilst there are criteria to qualify for security of tenure, most “business tenancies” are caught by the current statutory regime.

If a protected tenant exercises its statutory right, the landlord can only oppose a new tenancy on limited statutory grounds which it must prove. The grounds are a mix of fault (e.g., if a tenant is in arrears of rent) and non-fault (e.g., if the landlord intends to develop the premises or occupy it itself) with the court having varying levels of discretion.

If a tenant’s occupation qualifies for security of tenure, that tenant will have protection by default. The parties can choose to opt out of security of tenure through a prescribed statutory process known as “contracting out”.  Contracting out gives the landlord absolute discretion to require the tenant to leave the premises at the end of the tenancy, hence the 54 Act being key to most commercial leasing negotiations.

What has happened?

The 54 Act has underpinned commercial leasing for 70 years with the last significant update being over 20 years ago. Quoting the LC, the commercial leasehold market is “complex, multifaceted and changes over time”. The LC’s first consultation paper issued in November asks whether the 54 Act regime is fit for purpose in an ever-changing market landscape. The full consultation paper, along with an accompanying survey, are available here https://lawcom.gov.uk/project/business-tenancies-the-right-to-renew/ .

The LC’s consultation proposes four options for the security of tenure regime with varying degrees of landlord or tenant protection. The four options are briefly summarised as follows:

1. continue “contracting out”: retain the current tenant friendly regime with security of tenure as the default position and right for parties to contract out;
2. start “contracting in”: a landlord friendly spin on the current position, switching the default position to no security of tenure with the right for the parties to contract the protection in;
3. mandatory security of tenure: maximum tenant protection by making security of tenure mandatory for qualifying tenancies, with no option to contract out; and
4. abolition of security of tenure: maximum landlord protection by getting rid of the concept of security of tenure completely. The consultation envisages that any tenant rights to renew would instead be a contractual agreement.

The LC are also seeking opinion on whether the range of tenancies currently covered by the 54 Act regime should be revisited. For example, the LC query whether 54 Act exclusions should include market drivers such as use, square footage and passing rent.

What’s next?

The LC want to hear from as many people as possible and have produced an online response form available here https://consult.justice.gov.uk/law-commission/business-tenancies-consultation-paper-1/ . The deadline for responses is 19 February 2025.

Having reviewed the responses, the LC will issue a second consultation paper detailing their recommendations for reform (if any) followed by a final report for submission to the Government who will decide whether to implement.

The take home at this stage is “wait and see”, but interested parties should have their say before the February deadline.

How we can help

For expert advice on how these proposed changes may impact your specific property interests, our specialised teams are here to help. Please do get in touch.