The Landlord and Tenant Act 1954 (LTA 1954) is the key piece of legislation for leasing commercial property in England and Wales. We talk about it in our blogs and articles… a lot! The Law Commission has just announced it will be reviewing part of the statute, as part of its Anti-Social Behaviour Action Plan.
The what and why of the review
The review is focusing on Part 2 of the LTA 1954, which relates to 'security of tenure' i.e. the tenant's right to acquire a new lease of the property after expiry of the term of their existing lease.
The government has said it wants to create a legal framework that is widely used, makes more efficient use of the high street taking into account its other strategies such as the “net zero” and “levelling up” agendas and with the aim of fostering the productive and beneficial relationship between landlords and tenants.
Timing
In consulting on reform now, the government has cited growing calls for modernisation from industry following changing consumer behaviours to online retail, the financial crisis and global pandemic.
The problem
Although it has stood the test of time for nearly 70 years (and its pre-cursor meaning this manner of commercial leasehold title has been ongoing for nearly 100 years!), and is the backbone of commercial leasing, the LTA 1954 is often said to not be widely used by industry with the option for the parties to contract out of it. It has also been described as inflexible, bureaucratic and expensive.
One example is the problem with turnover-rent leases being renewed under the LTA 1954, owing to the variability of calculating interim rent on a turnover basis in the statute. In the 2021 case of W (No.3) GP (Nominee A) Limited v JD Sports Fashion plc involving the renewal of a turnover lease, the landlord had sought turnover rent for both the new lease and interim rent. The tenant sought fixed rents. The court ordered a fixed rent in both circumstances and held that it would only be appropriate to determine a turnover rent in exceptional circumstances. For more information on this issue and the case, please see our blog on the topic here.
Another issue highlighted in recent times is the tenant's right to statutory compensation payable if a landlord wishes to terminate an LTA 1954 protected lease on certain grounds. For example, if the landlord wishes to terminate the tenancy because it wants to redevelop the property, it will have to pay the tenant 1 or 2 times the rateable value of the property (depending on the length of occupation). This can result in significant sums being paid in compensation to a tenant. On 1 April 2023, business rates changed. Data published by the Valuation Office reveals a marked difference in the treatment of different asset classes. For some such as industrial (storage and distribution) there is expected to be an increase in rateable value by an average of 32%. For more information on this issue and LTA 1954 compensation, please see our blog on the topic here.
Next steps
We can expect further announcements from the commission in due course, and it is expected to publish its consultation paper by the end of this year.
If you are a commercial landlord or tenant dealing with statutory lease renewals and terminations or, you have any concerns or questions about the impact changes to the legislation may have on you or your business, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies contact.
