ADDITIONAL TRANSITIONAL PROVISIONS
The Department wrote to us again, late in the period
for Parliamentary consideration, to draw our attention to an additional
matter which had been raised by a member of its Sounding Board.[124]
The question concerns how the courts would interpret certain
contractual obligations under leases taken out under the existing
legislation, once the new provisions came into effect. These
obligations refer directly to the existing procedures under which
parties wishing to exclude security of tenure need to obtain court
approval. With the abolition of the court procedure, these obligations
could not be carried out once the reforms came into effect. The
issue which the Department had to consider was whether to leave
it to the courts to apply their own discretion, or for the legislation
to guide them on how to interpret such contractual obligations
once the new statutory provisions come into force.
These contractual provisions vary, but most frequently
they are found where the landlord wishes to protect his or her
position when the tenant sublets the property. Often, a lease
covenant would require the tenant to obtain a court order excluding
security of tenancy from the subtenancy. The landlord's approval
to the subletting would be contingent on the tenant furnishing
a copy of the court order. Without a specific provision in the
proposed order, a court could interpret such an obligation in
one of three ways once the reforms came into effect:
the statutory provisions dealing with agreements
to exclude security of tenure have been supplanted by new provisions.
The obligation to do something in relation to the old provisions
should now be read as following the equivalent requirements under
the new provisions. In the case of the example cited above, as
the tenant could no longer furnish a copy of the court order,
he or she would now need to provide the landlord with evidence
of compliance with the new arrangements for excluding security
of tenure (Article 22 and Schedules 1 and 2 of the draft Order);
the tenant can no longer fulfil the requirements,
so has lost the right to sublet; and
the tenant can no longer fulfil the lease obligations,
so they have no effect. This could result in the subtenancy acquiring
renewal rights under the Landlord and Tenant Act 1954, despite
the intention behind the contractual agreement for the landlord
to be able to prevent this from happening.
The Department consulted all members of its Sounding
Board about this issue. It reported that members considered that
the courts would almost certainly interpret such a contractual
obligation as at (a) above. This would cause no difficulty.
However, the Department has considered the slight risk of an interpretation
as at (b) or (c), which would be detrimental to the interests
of the tenant (in the case of (b)) or the landlord (in the case
of (c)). It has therefore concluded that the safest course would
be for the new legislation to guide the courts on the interpretation
of any such contractual arrangements.
The Department therefore propose to introduce an
amendment to the draft order at Stage Two scrutiny. This would
add a further transitional provision to the draft order, deeming
any reference in a contractual arrangement entered into before
the new provisions came into effect to the existing section 38(4)
procedures, to be a reference to the new procedures under new
section 38(4)(A). It would make it clear that the tenant would
satisfy any obligation to do anything in relation to existing
section 38(4) by showing that he or she had followed the procedures
under new section 38A.[125]
Due to the lateness of the notification of this proposed
amendment to the proposal, we have not yet been able to come to
a fully considered view on this matter. We will therefore
return to this issue when we examine the draft order, at "second-stage"
scrutiny.
Review of the working of the
order
The Department has confirmed that it intends to carry
out a review of the changes after they have been in effect for
twelve months. It expects that review to be complete by the end
of December 2004.[126]
We welcome the Department's decision to review the impact
of these very significant changes to important legislation, and
we look forward to seeing in due course the results of that review.
Report under Standing Order No.
141
We recommend that the proposal be amended as described
in paragraphs 50 and 202 above before a draft order is laid before
the House.
111 For the full membership of the Sounding Board,
see p.101 of the explanatory document. Back
112
Explanatory statement, Annex B1. Back
113
Appendix C. Back
114
Appendix C. Back
115
p.140ff. Back
116
p.143ff. Back
117
Para 20. Back
118
p.137. Back
119
Annex F8 of the Department's explanatory document, which is supposed
to explain which provisions are being designated as subordinate
and why, not only refers to the wrong schedules (it specifies
Schedules 3 to 6, rather than 1 to 4), but also implies that they
cater only for the wording of the notices and "health warnings",
not, as is in fact the case, the detail of the procedures themselves. Back
120
Para 1 (p.102). Back
121
ibid, para 2. Back
122
ibid, para 3. Back
123
ibid, para 4. Back
124
Appendix D. Back
125
Appendix D. Back
126
Appendix B, para 31. Back
