Security of Tenure: should it stay or should it go?

The Landlord and Tenant Act 1954: few bits of legislation are as well known (or infamous to some) in the commercial real estate market. Seventy years from its enactment and more than twenty years since any significant update, the Law Commission’s eagerly awaited consultation paper on the future of security of tenure has been published today. 

Even since the last update in 2003, the world has changed significantly: the boom of online shopping; the development of generative AI; the pandemic fuelled acceleration of remote working; the urgent focus on the climate emergency and the country’s ambitious journey to net zero.

That the real-world context to the 1954 Act has changed is not in doubt. That some reform would be welcome also appears to be universally accepted.  But when turning that into “what” and “how” – the consensus starts to splinter.

So what next for one of the most significant pieces of legislation in the commercial real estate market in England & Wales?  

*Spoiler* - Abolition of security of tenure for business tenants is not (yet) off the table.

The Status of Reform

In March 2023, the Law Commission was tasked with conducting a wide review of Part 2 of the 1954 Act. Since then, it has been engaging in discussions with a number of stakeholders. 

Today we learned that the Law Commission will issue two separate consultation papers.

The first (and published today) focuses on the fundamental questions of (1) the extent to which commercial tenants should have security of tenure at all and (2) whether the current “one size fits all” approach is appropriate - or is there a case that only some commercial tenants should benefit from security of tenure (if it is to stay)?

The second consultation paper will be more technical.

Using the responses to the first paper, it will pose questions about the detail of reform. It will likely focus on the forum for resolution, grounds of opposition, statutory compensation, the lease terms and issues caused by the gap in registration with HM Land Registry following transfer of property interests, as well as contracting in/out procedures. 

The Consultation Paper

The First Consultation Paper proposes four different models for the future of security for tenure:

1. Mandatory security of tenure;
2. No security of tenure (abolition);
3. Security of tenure to require “contracting in”; and
4. Maintaining the “contracting out” model.

Separately, and assuming security of tenure is to remain in some form, the First Consultation Paper considers the potential to reform the scope of Part 2 of the 1954 Act by:

1. Adding to/removing from the list of the types of tenancies excluded from 1954 Act protection under the current regime;
2. Changing the rules on exclusion of 1954 Act protection for tenancies granted for a period of less than 6 months; and
3. Excluding tenancies from 1954 Act protection based on the characteristics of the tenancy such as floorspace, location type, level of rent. 

What Next?

There is a lot to unpack about the pros and cons of the different models; as well as how to break down something that sounds simple like “the scope” of who benefits from security of tenure into something that works fairly and consistently in reality (and noting the commercial real estate market is incredibly diverse and varied in all respects, for example: the operators, location, type of property, motive and need for real estate, and market dynamics are just a few of the ways that this variety appears).

There is also the question about how, if security of tenure is to stay, it does not act to petrify lease terms and therefore prevent the urgent changes and innovation that may be needed to address big picture issues – particularly regarding sustainability and environmental issues.  

If you’d like to discuss this in more detail, then we’d love to hear from you.

The First Consultation Paper makes clear that significant evidence (much of which will come from responses) will be required to effect any significant change in the regime. The Law Commission is therefore keen to hear from as many people as possible.

Responses to the First Consultation Paper are to be submitted before the end of the consultation period on 19 February 2025. Responses to the consultation can be given here and you can respond to the survey here. 

You can register via these links for the Law Commission’s online events on 9 December 2024 and/or 4 February 2025 to hear more about the project. Details of in-person events are to follow.