Why is the Landlord and Tenant Act important?
There are around five million businesses with many operating from leased premises. The 1954 Act is central to the commercial leasehold market and impacts both landlords and tenants. Any reform to the security of tenure regime must consider the wider market influences, including economic, social, and legal factors.
Pros and cons of Security of Tenure
The current law strengthens tenants’ negotiating power during lease renewals, that can lead to better lease terms and encourage investment due to long-term security.
However, this also discourages landlords from offering short-term leases, as they may worry about regaining their property at the end of the lease. Tenants seeking flexibility in rent or lease length may also be restricted by the default security of tenure.
Proposals to scrap lease renewal rules under discussion
The Scottish Law Commission has opened a consultation on the Tenancy of Shops (Scotland) Act 1949, which deals with commercial lease renewals for retail, food and drink, hair and beauty and wholesale tenants. They are seeking the views of agents, tenants, and landlords on whether there is still a need for the Act, and whether it should be repealed, replaced, or reformed.
The four proposed models
- Contracting Out: Retain the current system, allowing landlords and tenants to agree to exclude security of tenure via a formal process.
- Mandatory Security of Tenure: Apply security of tenure to all business tenancies, with no option to opt-out.
- No Statutory Security of Tenure: Abolish security of tenure, leaving lease renewals to contractual agreements.
- Contracting In: Tenancies are unprotected by default, but both parties can choose to include statutory security of tenure.
If the consultation reveals that contracting out is common, eliminating the need for a legal framework could make abolishing the security of tenure a viable option. With an oversupply of commercial space, mandatory security of tenure could unfairly favour tenants, and the trend towards shorter tenancies may make the statutory renewal process cumbersome.
However, abolishing the security of tenure would be a significant change, potentially introducing unintended consequences. The 1954 Act offers a standardised framework for lease renewals, whereas removing it could increase costs, complexity, and inconsistency for both landlords and tenants.
Why agent participation is essential
The commercial leasehold market varies widely across sectors, regions, and property types. Reforming the security of tenure regime requires careful analysis of its economic impact and potential effects on existing tenancies.
The choice of model will significantly affect both landlords and tenants. Further research and input from stakeholders are essential to make informed, evidence-based policy decisions that support a fair and efficient commercial leasehold market.
The consultation is open until 19 February 2025, and the Law Commission then expects to publish a second consultation paper based on the responses. Propertymark will respond to the consultation and we value member input to shape this response. Please send your comments to [email protected].
With high streets under strain from vacant units and lack of investment in recent years, a move towards the abolition of security of tenure, leaving lease renewals to contractual agreements, would further enhance much needed investment in the commercial sector. This measure would also make the process of review of rent on lease renewal a much fairer prospect from an investors point of view.
Tenants forget that any rent review is the legal mechanism that is designed to return landlords' rent to an open market rent, which the landlord is entitled to do from time to time, but this is far harder to achieve on a lease within the 1954 Act.
The threat of landlords and investors overpricing their assets would be counter productive as property would fall vacant and face re-letting costs, so the market would ultimately determine the rent and lease renewals would be far easier to implement with a far quicker and easier process.
