APPENDIX A
Letter from the Clerk of the Committee to the
Office of the Deputy Prime Minister
Proposal for the Regulatory Reform (Business Tenancies)
(England and Wales) Order 2002
1. The Committee considered the above proposal
draft order at its meeting today. It has resolved to seek further
information from the Office of the Deputy Prime Minister, as follows.
Detail of the proposed procedures for contracting
out of security of tenure/agreements to surrender
2. The Committee seeks further explanation
from the Department about the proposed procedures for contracting
out of the provisions of Part II of the Landlord and Tenant Act
1954, and for agreements to surrender leases.
3. The Committee understands that the purpose
of the Department's notice procedure is to avoid the risk of the
prospective tenant being "bounced" into giving up his
renewal rights. So, "normally" he should receive at
least 14 days notice before committing himself. However, to cater
for cases of emergency, it would be possible to waive the requirement
for 14 days advance notice, subject to the tenant making a statutory
declaration.
4. The Committee has noted, however, that
there is nothing in the proposed order indicating the circumstances
in which the two procedures should be used. They seem to be alternatives,
and there appears to be no obligation to give the 14 day notice
even where this is in fact practicable. So, there appears to the
Committee to be nothing preventing the supposed 'emergency' procedure
from becoming the usual practice. It therefore seems doubtful
whether the tenant would "normally" receive the minimum
14 days' notice.
5. The Committee also notes that, in the
case where at least 14 days' notice is given to the tenant, there
is no requirement (such as that proposed by the Law Commission)
that a simple declaration, signed by the tenant, that he has read
and understood the health warning and accepted the consequences
of entering into the agreement should be endorsed on the lease.
By keeping the declaration separate from the instrument creating
the tenancy¾it would be endorsed on the document rather than
incorporated into its text¾and by requiring a separate signature,
the aim was to ensure that the tenant realises that the agreement
to contract out is a matter is a matter of some importance requiring
separate consideration.
6. In relation to the proposal relating
to the case where the minimum 14 days' notice has not been given
to the tenant, the Committee questions the need to employ a statutory
declaration (under the Statutory Declarations Act 1835). There
are a number of reasons for the doubt over this particular aspect
of the proposal:
- The Law Commission's proposals contemplated a
prescribed declaratory statement by the tenant¾not a declaration
under the 1835 Act. Bearing in mind that the procedure is intended
to remove unnecessary regulation, and that it is intended as a
benefit for the tenant, it seems unnecessary to make the tenant
(or his authorised representative) make a declaration before an
independent solicitor (i.e. one not acting for the tenant), and
pay a fee.
- It appears to the Committee that the making of
a statutory declaration is not more likely to ensure that the
tenant reads and understands the notice than if he had to make
the simple declaration contemplated by the Law Commission.
- The sanctions for perjury, which would apply
to statutory declarations, do not appear appropriate in this context.
- The need for a statutory declaration seems out
of step with the recent procedural reforms to the court system,
where the need for separate affidavits and statutory declarations
has been substantially reduced.
- Since the declaration is an acknowledgement by
the tenant that the notice was in proper form and was properly
served, the tenant would be prejudiced if he wants to contest
the validity of the notice. (This problem would not seem to arise
under the Law Commission's proposal, since that does not appear
to envisage that the declaration would contain a statement corresponding
to paragraph 3 of the declaration set out under paragraph 6 of
Schedule 2 to the draft Order.)
7. The Committee further notes that all
these objections were made by a number of consultees.
The Committee therefore asks the Department the
following questions:
Q1 Why has the Department departed from
the Law Commission's proposals in respect of the procedures for
contracting out of security of tenure, given that those proposals
received substantial support from respondents to the Department's
consultation?
Q2 Why, in relation to the case where the minimum
14 days' notice has been given, is there no requirement for the
tenant to sign a simple declaration that he has read the health
warning and accepted the consequences of entering into the agreement,
and for the declaration to be endorsed on the lease?
Q3 Why (in the case where the minimum 14 days'
notice is not given by the landlord), is the tenant required to
sign a statutory declaration (under the Statutory Declarations
Act 1835), given the problems to which such a declaration appears
to give rise?
Inconsistencies in the legislation
8. The Committee notes that the repeal of
section 24(2)(b) would mean that immediate surrenders (i.e., without
any prior agreement) would be effective at any time. There would
no longer be a requirement that the surrender must have been executed
after the tenant has been in occupation for one month.
9. On the other hand, the Committee also
notes that there are three other provisions (sections 24(2)(a)
and 27(1) and (2)), all relating to unilateral termination of
the tenancy by the tenant, which only permit a notice to be given
after the tenant has been in occupation under the lease for at
least one month.
10. The one-month occupation requirement in sections
24(2) and 27 was introduced by the Law of Property Act 1969, which
gave effect to the Law Commission's 1969 Report (Law Com No. 17)
on this point and was intended to provide protection for the tenant
(see paras 29-30, recommendation E (at page 19) and the explanatory
notes on clause 5 at page 29 of that Report). Leaving aside the
case of agreements to surrender (which will be subject to the
health warning proposals), there appears to be an inconsistency
between the abolition of the one month occupation requirement
for immediate instruments of surrender, on the one hand, and the
continuing requirement for one month's occupation in sections
24(2)(a) and 27, on the other. If the protection of the tenant
requires the retention of the one month occupation qualification
for notices to terminate the tenancy, why is it not also required
for immediate instruments of surrender?
The Committee therefore asks the Department the
following questions:
Q4 What is the reason for the abolition
of the requirement for one month's occupation in relation to immediate
instruments of surrender, given that the requirement is retained
for notices to terminate the tenancy in sections 24(2)(a) and
27?
Q5 What is the reason for the retention of that
requirement in those sections, given that it is to be abolished
for immediate instruments of surrender?
Interim rent: new burden
11. The new section 24A(3) (inserted by
article 18 of the proposed order) appears to impose a new burden,
by setting a time limit for applications for interim rent. However,
the Department does not justify this new burden in its explanatory
document.
The Committee therefore asks the Department the
following questions:
Q6 Does the Department consider that this provision
imposes a new burden?
Q7 If so, how may the imposition of this
new burden be justified in terms of the Regulatory Reform Act?
Article 25: confirmation of 'Esselte' decision
12. The explanatory document states that
Article 25 of the proposed order is intended to confirm on the
face of the Act the interpretation of the existing law applied
by the court in the 1996 case of Esselte. As suggested by a number
of consultees, the Committee considers that the Court of Appeal's
decision means that the existing law imposes a burden on landlords,
because it may require them to apply to the court for a renewal
of the tenancy in order to be certain of the tenant's intentions
in respect of the tenancy. The Committee therefore considers that
this article represents the re-enactment of a burden. Its concerns
relate to the question of whether that burden is proportionate
to the benefit which is expected to result from its re-enactment.
13. Under the proposals, landlords would
not necessarily receive any notice of a tenant's intention to
quit at the end of a contractual fixed-term tenancy. A landlord
wishing to ascertain his tenant's intentions before the end of
such a tenancy would be able to do so by serving a section 25
notice and subsequently applying to the court for the renewal
of a tenancy.
14. The Committee has noted consultees'
concerns that this situation puts the landlord in an unreasonably
difficult position when trying to decide whether to market the
property or not. The landlord would not be able to ascertain a
tenant's intentions at the end of the lease except by taking out
court proceedings. If he did not do so, consultees argued that
a landlord could therefore be faced with the choice of either
wasting money on marketing the property, and then finding that
the tenant wishes to renew anyway, or risking a "rental void"
when the tenant leaves on the last day of the contractual term.
Consultees pointed out that the Department's argument in favour
of these provisions, that a landlord wishing to ascertain the
tenant's intentions could initiate proceedings for renewal, rather
goes against the main thrust of the proposals, which is to try
to eliminate unnecessary court proceedings.
15. The Committee has further noted your
response to these criticisms in your summary of the later set
of consultation responses. However, it considers that even this
further response leaves certain questions unanswered. Your response
notes that landlords have no guarantee that even tenants who are
apparently keen to renew their leases will actually do so, as
a tenant granted a new lease may apply to have the tenancy revoked.
It is not clear what relevance the ability of a tenant to apply
to the court to have an order for grant of a new tenancy revoked
(under section 36(2)) has to the question whether the tenant should
be required to give notice before giving up the tenancy at the
end of the contractual term. It is appreciated that section 36(2)
may be relevant to the argument for abolishing the tenant's counternotice:
a tenant, who indicates in his counternotice that he is unwilling
to give up possession and is subsequently granted a new tenancy
by the court, can apply for the order to be revoked. So, the tenant's
counternotice affords no real indication of the tenant's intention.
But this is different from the case under consideration, where
the tenant wishes to give up his tenancy at the end of the contractual
term.
16. Further, your response fails to reply
to the criticism that the argument that a landlord wishing to
ascertain the tenant's intentions could initiate proceedings for
renewal runs counter to the intention of eliminating unnecessary
court proceedings.
The Committee therefore asks the Department the
following questions:
Q8 How does the Department respond to the
criticism that the argument that a landlord wishing to ascertain
the tenant's intentions could initiate proceedings for renewal
runs counter to the intention of eliminating unnecessary court
proceedings?
Q9 Explain how the tenant's ability to have
an order for grant of a new tenancy revoked affects the question
of whether he should be required to give notice before giving
up the tenancy at the end of the contractual term.
Q10 In the light of the questions above,
can the Department explain how the re-enactment of this burden
is proportionate to the benefit expected to result?
Subordinate provisions: procedures in respect
of the National Assembly for Wales
17. The question which the Committee wishes
to raise relates to article 28(5) of the proposed order. 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:
- by the National Assembly for Wales,
- by the Assembly concurrently with a Minister
of the Crown, or
- by a Minister of the Crown with the agreement
of, or after consultation with, the Assembly.
18. The Committee notes that, 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.
In your explanatory document, you argue 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 Committee understands that the section
66 power is exercisable not concurrently with a Minister, but
exclusively by the Assembly (though it also understands that other
powers in the Act (under section 57 and 58) are exercisable by
the Assembly concurrently with a Minister of the Crown).
The Committee therefore asks the Department the
following question:
Q11 What was the Department's rationale
for choosing this particular option for the exercise of the power
to make subordinate provisions orders in relation to Wales?
Form of the statutory declaration
19. It appears that the way the statutory
declaration Schedules 2 (para 6) and 4 (para 5) is currently set
out may result in the charging of an unnecessary additional fee
to those tenants who are required to sign such a declaration.
The Committee's understanding is that the normally accepted position
in relation to statutory declarations is either that the true
content precedes the declaration at the end, or that within the
text it refers to a separate exhibit and identifies 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.
20. Because the third paragraphs of the
statutory declarations set out in these Schedules refer to "The
form of the notice set out ... below", and the form of the
notice follows the signature and attestation, it appears to the
Committee that the form of the notice may therefore be regarded
as an exhibit, and thus attract the extra fee. To avoid this problem,
should not the final flourish ("And I make this solemn declaration
..."), and the signature and attestation, come at the end
of the declaration?
21. Incidentally, in paragraph 5 of Schedule
4 to the Order, the internal reference should be to paragraph
3, instead of paragraph 5.
The Committee therefore asks the Department the
following question:
Q12 Does the Department believe that, for
the reasons given above, the way the statutory declaration is
currently set out would result in the charging of an unnecessary
additional fee to those tenants who are required to sign such
a declaration?
The Department's plans to review the working of
the order
22. The Committee notes that the Regulatory
Impact Assessment at Annex G of the explanatory document states
(at para 22) that "there are no plans for a formal review
of the proposed changes." Elsewhere in the document, however
(for example at para 93 on p.94), the Department implies that
there are plans to review how the changes are working.
The Committee therefore asks the Department the
following questions:
Q13 What are the Department's plans to review
the working of the Order?
Q14 Given the potential significance of
the changes which are being made, will the Department undertake
to report to the Committee on the working of the new arrangements?
Consultation with the voluntary sector
23. It is not clear to the Committee what
consultation has taken place with the voluntary sector, which
may be substantially affected by these proposals.
The Committee therefore asks the Department the
following question:
Q15 What consultation has taken place with
the voluntary sector on these proposals?
Effect of the proposals to exclude security of tenure
on current lease terms dealing with sub-tenancies
24. In the covering letter attached to your
summary of the points raised in additional responses (dated 1
October), you mention that you are considering how your proposals
to exclude security of tenure will affect current lease terms
dealing with sub-tenancies; and that you will forward the correspondence
and your response once you have decided how to proceed. It would
be helpful if you would indicate when we are likely to receive
that correspondence.
Huw Yardley
Clerk of the Committee
19 November 2002
| 
