Further letter to the Clerk of the Committee from
the Office of the Deputy Prime Minister
Business Tenancies Regulatory Reform Order
On 1 October, I sent you copies of additional responses
we received following the end of our consultation on reforms to
Part 2 of the Landlord and Tenant Act 1954. I also drew attention
to a further point that had been raised since we laid the draft
Order. I promised to write again once we had decided on our response.
I am sorry for the delay in writing to you.
A member of our Sounding Board, Philip Freedman,
raised the question of 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 is 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
Regulatory Reform Order, a court could interpret such an obligation
in one of three ways once the reforms came into effect:
a) 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);
b) the tenant can no longer fulfil the requirements,
so has lost the right to sublet; and
c) 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.
We have consulted all members of our Sounding Board
about this issue. Members consider that the courts would almost
certainly interpret such a contractual obligation as at (a) above.
This would give us no difficulty. However, we have 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)). We have therefore
concluded that the safest course would be for the new legislation
to guide the courts on the interpretation of any such contractual
Subject to the reports of the Parliamentary Committees
on the outcome of Stage One scrutiny, we would 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.
I enclose the relevant correspondence with members
of the Sounding Board on this issue.
We would of course be pleased to answer any queries or concerns
by the Committee on this proposal, or to provide any further information.
Land and Property Division
2 December 2002
Insert after Article 29(4):
(5) Any term (however expressed) in a tenancy to
which paragraph (6) below applies which requires an order under
section 38(4) of the Act to be obtained shall be construed after
the coming into force of this Order as if it required the procedure
mentioned in section 38A of the Act to be followed (and any related
requirement shall be construed accordingly).
(6) This paragraph applies to a tenancy which is
granted before this Order comes into force and which has legal
effect after this Order comes into force.
128 Not printed. Back