Select Committee on Regulatory Reform Second Report


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 arrangements.

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.[128] We would of course be pleased to answer any queries or concerns by the Committee on this proposal, or to provide any further information. ...

Patrick Martin

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

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