Select Committee on Regulatory Reform Second Report



This proposed regulatory reform order would amend Part II of the Landlord and Tenant Act 1954. This legislation is designed to offer protection to business tenants by ensuring that they have, in normal circumstances, the right to renew their tenancy at the end of their lease ("security of tenure").

In order to ensure that the legislation is fair to both landlord and tenant, while underpinning the free operation of the property market, the Act necessarily includes much complex detail. It also requires much recourse to the courts.

The proposed order seeks to change the workings of the 1954 Act to make the renewal or termination of business tenancies quicker, easier, fairer and cheaper. The proposals are intended to reduce the amount of litigation and fit better with the new Civil Procedure Rules (the Woolf reforms).

The Department's proposals

The main proposals for specific amendment are as follows:

Agreements to exclude security of tenure/surrenders. Currently, if a landlord and tenant wish to agree a lease which excludes security of tenure, or if the tenant is to agree to surrender a lease, they must make a joint application to the court for its approval. The proposal would remove the requirement to apply to the court, and introduce new procedures designed to ensure that the tenant becomes aware of the consequences of excluding security of tenure, or of agreeing to surrender the lease at some time in the future.

Statutory renewal procedures. To help speed up the process, there would be a new requirement for landlords who are not opposing renewal to set out their proposals for a new tenancy in the termination notice. The requirement for a tenant to serve a counternotice in response to the landlord's termination notice would be abolished. Landlords would be permitted to apply to court to renew or to terminate the tenancy, and the court would have new powers to take a case all the way to its conclusion without the need for new applications. There would also be changes to the time limits for applications to court.

Ownership and control of businesses. The proposed order would bring the Act up to date in respect of the definition of the business entities which enjoy rights under the Act or are subject to its provisions.

Notices requiring information. The Act lays down procedures enabling landlords and tenants to obtain information from each other which they would need in order to operate renewal or termination procedures. The proposals would make these more effective by requiring the parties to update information provided for six months, by catering for parties transferring their interests and by introducing more effective enforcement procedures.

Interim rent. Interim rent is the rent which may be ordered by the court while the tenancy continues after the contractual term date. The proposed order would change the rules on interim rent with the aim of making the system fairer.

Compensation. At present a tenant may claim compensation from the landlord where the court has refused the grant of a new tenancy as a result of misrepresentation. The proposed Order extends this to cover cases where the tenant is induced not to apply to court or to withdraw an application because of misrepresentation. There are also proposals to rationalise the rules for compensation payable in certain cases where the landlord successfully opposes renewal of the tenancy.

Other changes. The proposals include a number of other changes, for example:

  • enabling the courts to order the grant of new leases up to a maximum period of 15 years, instead of 14 at present. This is more compatible with modern leasing patterns, where leases tend to have three or five yearly rent reviews;

  • facilitating use of the procedures where there is a single lease but several different landlords.

The Committee's conclusions

Broadly speaking, the proposals appear to be a most welcome attempt to improve the working of the Act, and the Committee is content that they be proceeded with. However, the Committee recommends two changes to the proposals.

Firstly, the Committee is not satisfied that all necessary protection is maintained in respect of the procedures for excluding security of tenure and for agreements to surrender. The Committee recommends a minor change in those procedures to ensure that the tenant has the best possible chance of appreciating the significance of agreeing to exclude his rights under the Act. (See paragraphs 38 to 50 of the Report.)

Secondly, the Committee was concerned that the form of one of the schedules to the order may result in the payment by the tenant, in certain circumstances, of an unnecessary fee. The Department has agreed to make an amendment to the schedule concerned before bringing back a draft order for second-stage scrutiny. (See paragraphs 201 to 202 of the Report.)

The Department also intends, when a draft order is laid for "second-stage" scrutiny, to bring forward one further amendment, intended to guide the courts on the interpretation of certain contractual arrangements where a tenant sublets a property. The Committee will consider this point further when it considers the draft order.

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Prepared 19 December 2002