Security of Tenure Consultation: How reform could impact Landlords and Tenants
On 19 November 2024, the Law Commission launched a Consultation which examines the future of Security of Tenure under Part II of the Landlord and Tenant Act 1954 (“the Act”).
The existing framework of the Act provides many business tenants with the statutory right to renew their leases, protecting stability in commercial lease relationships. Nearly 70 years since the inception, as the commercial property market evolves, the Act is being scrutinised to determine if it remains suitable for the modern market.
What is Security of Tenure?
Security of Tenure grants business tenants the right to remain in occupation of a property after the expiry of their lease and to negotiate a renewal of such.
Unless a landlord can provide one of the statutory grounds for opposition of a new lease, the Act guarantees that tenants of qualifying business leases can request a new lease. If renewal is unopposed by the parties, the Act provides a framework for negotiating the terms of the new lease or, if necessary, a process for the court to determine the terms.
These protections aim to foster stability for businesses by ensuring they are not displaced without due cause, balancing tenants’ rights with landlords’ property management interests.
Key issues addressed in the Consultation
- Challenges in the Current Framework
Critics of the current Act argue it is “outdated” and “burdensome”, hindering efficient property use and creating obstacles for landlords and tenants. The rise of flexible working, e-commerce, and other post-pandemic trends have made the renewal system under the Act less relevant for many.
- Proposals for reform
The Consultation is exploring four potential models for reforming security of tenure:
- Abolition of security of tenure
Lease renewals would be governed by market forces and negotiation. Tenants would have no security of tenure, but a landlord and tenant could still agree an option to renew on a contractual rather than statutory basis.
- Opt-in regime
The default position would be that tenants have no security of tenure. Tenants would gain renewal rights only if expressly agreed upon in the lease. This reverses the current “opt-out” default and could provide greater clarity, while preserving some tenant protections.
- Current regime (opt-out)
Retaining the current system where security of tenure is default, unless explicitly excluded. Minor adjustments could streamline the renewal process, such as introducing faster dispute resolution mechanisms, or narrowing the scope of protected tenancies.
- Mandatory security of tenure
Making security of tenure a universal compulsory right, removing the ability to contract out. This would strengthen tenants’ rights but could limit landlords’ control over their assets.
- Broader Scope
The Consultation also addresses tenancies which fall outside of the regime under Section 43 of the Act. These include: agricultural holdings; mining leases; service tenancies;, tenancies lasting six months or less; and home business tenancies. It is being considered whether there should be any changes made to these categories, such as excluding short-term leases.
- Implications for Stakeholders
Landlords
The proposed changes could grant landlords greater control, particularly in managing redevelopment projects or adjusting property use. However, reforms which abolish or weaken security of tenure may require landlords to adopt a more proactive lease strategy to attract and retain tenants.
Tenants
Tenants, especially small business, may face increased uncertainty if security of tenure is removed or significantly restricted.
The consultation is open for responses until 19 February 2025, with all stakeholders encouraged to participate. Before the final report is released, a further consultation on the details of the suggested changes is expected.
The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.