Select Committee on Regulatory Reform Second Report



This is perhaps the most complex of the regulatory reform proposals yet brought forward. Nevertheless, being concerned with the detailed workings of a particular regulatory regime, it appears to be very much the kind of proposal which was envisaged when the Regulatory Reform Act was passed, and we are therefore content that it is appropriate for delegated legislation.



This proposal derives mainly from the results of a Law Commission review of the Landlord and Tenant Act 1954 which was completed in 1992. In 1996, the then Department of the Environment held a detailed consultation on some modifications to the Law Commission's 1992 proposals. The conclusions of that consultation formed the basis for the further consultation exercise which resulted in this regulatory reform proposal. These changes have therefore been the subject of a considerable degree of consultation over a long timescale.


The consultation paper proposing this regulatory reform order was published in March 2001. Responses were requested by the end of June. It was sent directly to around 40 organisations likely to have an interest in the proposals, and was published on the websites of the then Department for the Environment, Transport and the Regions and of the Cabinet Office. The organisations to whom the document was sent directly were chiefly representative organisations, such as the British Property Federation, the Chancery Bar Association and the Federation of Small Businesses. It is notable that the 46 responses received came mainly from people and organisations not sent the original document, suggesting that the consultation received fairly widespread circulation, and further confirming the efficacy of Internet consultation.

The Department subsequently set up a "Sounding Board" comprising representatives of landlords, tenants and professional bodies and practising solicitors.[111] The Department discussed the results of the original consultation exercise with the Sounding Board and published a report on the outcome, including the details of various modifications which it had made to its proposals in light of responses.[112] The Department also received some responses to this last report, which were discussed with the Sounding Board. Its report on these later responses was forwarded to us and is published with this Report.[113]


Whilst there were disagreements on some details, the broad thrust of the proposals was overwhelmingly welcomed by consultees. The most significant points raised in consultation are discussed in the context of the provision of the proposal to which they apply, in the first part of this report. These and other points raised in consultation are discussed by the Department in the explanatory statement and the later document submitted to the Committee.[114] The Department's reports on the consultation process appear to us to be an adequate account of, and an appropriate response to, the points made by consultees.


Details of the changes made to the proposals in the original consultation document are set out in Annex F13 of the explanatory statement.[115] Those changes have all been the subject of discussions with the Department's Sounding Board. We are satisfied that none was significant enough to have warranted re-consultation beyond those discussions.


We are satisfied that the proposal has been the subject of, and has taken appropriate account of, adequate consultation. The 'Sounding Board' process, which allowed competing and possibly conflicting interests to consult together on the proposals, is a technique of obvious benefit which might be usefully employed by other departments proposing regulatory reform orders of this kind of complexity.

Rights and freedoms

We are satisfied that the proposal would not remove any rights or freedoms which any person might reasonably expect to continue to enjoy. As the Department notes, the 1954 Act, as a regulatory measure, restricts the freedom of landlords to obtain possession of property in the interests of protecting business tenants from the loss of their premises and goodwill. There is thus, to some extent, a conflict between the unrestricted freedom of landlords and the need for business tenants to have a degree of statutory protection. This proposal would make some changes to the regulatory regime governing the leasing of business premises, and in doing so would make some changes to the rights and freedoms enjoyed by both landlords and tenants under the current arrangements. However, in the context of the beneficial changes being made to the regime as a whole, and in view of the fact that the balance between the rights of the landlord and those of the tenant are broadly maintained by these proposals, in no case could it be said that any person could reasonably expect to continue to enjoy any of those rights or freedoms.

Fair balance

The proposed order would create new burdens on both landlords and tenants. The Committee must therefore be satisfied that the provisions of the Order, taken as a whole, strike a fair balance between the public interest, on the one hand, and the interests both of landlords and of tenants, on the other.

In this case, we consider that the public interest lies in ensuring that there is a sensible and workable system for balancing the competing rights and obligations of landlords and tenants, which does not require undue recourse to the courts. To a very large extent the interests of landlords and tenants are the same as the public interest, except perhaps that they also have an interest in ensuring that the system does not place too heavy a burden on either of them. Given that we are satisfied that all the burdens imposed by the proposal are proportionate to the benefit which may be expected to result, we are therefore also able to conclude that the proposal strikes a fair balance between the public interest and the interests of landlords and tenants.


The proposed order must also pass the "desirability" test, which states that the extent to which the order removes or reduces burdens, or has other beneficial effects for persons affected by the burdens imposed by the existing law, must make it desirable that the order be made. The proposed order would remove a number of burdens both from landlords and tenants, as well as reducing the burden on the courts, and is intended to make the whole system of renewing or terminating business leases easier. We are therefore quite satisfied that the proposal passes this test.

Costs and benefits

An estimate of the increases and reductions in costs or other benefits which would result from the implementation of this proposal may be found in the Revised Regulatory Impact Assessment (RIA) at Annex G of the Department's explanatory statement.[116]

The RIA states, "It is very difficult to estimate the total costs (and savings) for a typical business affected by the legislation",[117] and as a result there is no attempt to calculate the overall financial impact of the proposed order. However, it is clear that the order should result in a reduction in court proceedings and the associated legal costs, and is unlikely to add to the costs incurred by any party to any significant extent.

As for other benefits, the explanatory statement says, "The streamlining of procedures under the 1954 Act will make the process of renewing or terminating business tenancies easier, faster and fairer. With less scope for manipulation by the parties on the one hand and the increased opportunity for resolution by negotiation on the other, the provisions should contribute to more harmonious relationships between owners and occupiers of commercial property."[118]

We are content that the proposal has been the subject of, and taken appropriate account of, estimates of increases or reductions in costs or other benefits which may result from their implementation.

Subordinate provisions

Schedules 1, 2, 3 and 4 of the proposed Order are intended to be designated as subordinate provisions for the purposes of section 4 of the Regulatory Reform Act (meaning that they could be amended by means of future "subordinate provisions orders" which would not have to go through the whole of the regulatory reform procedure). These schedules set out the details of the new procedures for excluding security of tenure and agreements to surrender, and set out the 'health warnings' and statutory declarations which will be required (see above).[119] Designation of these provisions as subordinate provisions would enable the Minister (or, in relation to Wales, the Minister concurrently with the National Assembly) to make changes to the details of the new procedures which might prove necessary in the light of experience. Any subordinate provisions order would be subject to the negative resolution procedure (and would be subject to scrutiny by this Committee).


The Regulatory Reform Act allows the that power to make subordinate provisions orders in relation to Wales may be exercisable in one of three ways:

In this case, the Department has chosen to make the power to amend Schedules 1 to 4 exercisable by the Assembly concurrently with a Minister (the second of the options set out above), arguing that this mirrors the existing powers in section 66 of the Landlord and Tenant Act 1954 (as amended by the National Assembly for Wales (Transfer of Functions) Order 1999). However, the section 66 power is exercisable not concurrently with a Minister, but exclusively by the Assembly; though other powers in the Act (under section 57 and 58) are exercisable by the Assembly concurrently with a Minister of the Crown. We therefore asked the Department what its rationale was for choosing this particular option for the exercise of the power to make subordinate provisions orders in relation to Wales.

The Department replied to the effect that its view was that it would not be in keeping with the spirit of devolution to deny the Assembly the opportunity to make its own subordinate provisions orders, given that the Assembly currently has responsibility for prescribing the relevant statutory notices under the Act. On the other hand, it acknowledged that the property markets in England and Wales are closely intertwined, and the Department and the Welsh Assembly Government agree that it would not be desirable to have different arrangements in each country, unless there is a good reason (for example, the use of Welsh language forms in appropriate cases). Concurrent exercise of the power, involving close cooperation and consultation between the Department and Welsh Assembly Government, therefore appeared to be the most appropriate option in the circumstances.

These explanations are very helpful. We agree that concurrent exercise of the power is sensible in the circumstances. Where provision is made in future for the separate exercise in relation to Wales of the power to make subordinate provisions orders, it would be helpful if departments would include in their explanatory statements detailed justification for the use of the particular procedure chosen.


We are satisfied that the designation of these provisions as subordinate, and the Parliamentary procedure which is proposed to apply to any consequent subordinate provisions order, are appropriate.



The Department admits that it would be difficult to claim that the proposed order was drafted in plain English. At Annex C of the explanatory statement, it explains that the order is drafted in language compatible with the original 1954 Act, which it describes as "reasonably clear for a highly technical and complex piece of legislation, although not very easy to understand for a lay reader."[120] The Department also explains why it has not attempted to take the more radical course of repealing the 1954 and restating it as amended in plain English.[121]

Nevertheless, on a more positive note, the Department "fully acknowledges the need for those affected by the legislation to have access to clear guidance in plain English", and sets out details of three publications which it plans to produce "to explain, in very clear terms, the impact of the Act".[122] Initial drafts of these publications have already been prepared. The Department also notes that it plans to produce a fourth publication, for the benefit of those already familiar with the working of the Act, which will set out the details of the changes which are proposed to be made by means of this regulatory reform order.[123]


We raised with the Department one further drafting matter, concerning Schedules 2 (para 6) and 4 (para 5). It appeared to us that the way the statutory declaration was set out in these schedules might result in the charging of an unnecessary additional fee to those tenants who would be required to sign such a declaration. The normally accepted position in relation to statutory declarations is either that the true content precedes the declaration at the end, or that within their text they refer to a separate exhibit and identify it by a reference marked on the exhibit (e.g. "The form of declaration now shown to me and marked "AA1"). Each exhibit is also signed by the commissioner. There is an extra fee for each exhibit: currently £2. Because the statutory declarations set out in these schedules referred to "The form of the notice set out ... below", and the form of the notice followed the signature and attestation, we were concerned that the form of the notice might therefore be regarded as an exhibit, and thus attract (unnecessarily) the extra fee. We asked the Department whether or not it believed that to be the case.

The Department's response was that it did not believe that a separate fee would be required, but, to place the matter beyond doubt, it proposed to retain a single document, but to place the declaration at the end. We recommend that the proposal be so amended.

Retrospective effect

The proposals would not have retrospective effect. Transitional provisions (Article 29) make it clear that the amendments would only apply to proceedings for the renewal or termination of business tenancies, or to notices served under section 40 of the 1954 Act, after the order came into effect. They also provide that the order would have no effect on agreements for the surrender of tenancies made under section 24(2)(b) of the 1954 Act, or authorised by the court under section 38(4), before the order came into force. Similarly, the order would have no effect on a notice a tenant had given under section 27(2) of the 1954 Act to his or her immediate landlord before the order came into force. The transitional provisions also make it clear that the new provisions on misrepresentation would not apply where the tenant quitted the premises before the order came into force.


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

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