Business Tenancies – Reform on the horizon?
Current Legal Regime:
Under the Landlord and Tenant Act 1954, all (defined) business tenancies are automatically opted into security of tenure. Security of tenure provides tenants with a right to renew their tenancy at the end of the lease. The reasoning behind this regime is that businesses build up a reputation and goodwill based on the location of their premises. If that business was then forced to vacate its premises at the end of the commercial term (i.e at the end of 5/10 years), this could harm the economic success of the business.
Before a business tenancy is entered, tenants can agree with their landlord to opt-out of this regime. To opt out, the Landlord must serve a notice on the Tenant and the Tenant must agree via a simple or statutory declaration.
The issue with the current regime is that opting out of security of tenure is extremely popular and many commercial landlords require their tenants to opt out as a condition for entering into the lease. Additionally, since COVID, online shopping has skyrocketed and the need for physical premises is dwindling. The extra documentation needed to opt out causes both the landlord and tenant extra cost, time and administration. The Government wants to streamline the process of getting into and out of leases to incentivise more people to rent premises and keep the high street vibrant in this new modern world.
The Law Commission aims to publish a consultation paper by late 2023 which will include a review of the Landlord and Tenant Act 1954. They aim to modernise commercial leasehold legislation by ‘creating a legal framework that is widely used rather than opted out of, incentivising the use of high street and fostering a better relationship between landlord and tenant.’ This appears to be a positive step to improve a very outdated systems.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.