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Landlord and Tenant Act 1954 – What is Next for Business Tenants?

21 October 2024

The Landlord and Tenant Act 1954 (“LTA 1954”) is a key law for UK business tenants, giving them “security of tenure” (a statutory right to a new lease when a lease expires (unless it is validly “contracted out”).

The LTA 1954 is not without complications and (a lot of case law) on what parts of it mean in practice. Some would question whether a 1950’s Act fits into the modern world where landlords have a legal obligation to let premises with an energy performance rating of “E” or above (often involving hotly negotiated new clauses in renewal leases), or where the high street has gone a radical transformation over the past 20 years or where turnover rents are very common across sectors.

The Law Commission is reviewing the 1954 Act, after 20 years since the last review. Below are some of the issues which might come up.

The Issues

• To get around the LTA 1954, you have to have very specific wording in a lease, and a specific, (fairly) strict procedure has to be followed (service of notice and usually a sworn declaration has to be made by the tenant before an independent solicitor ). The procedure has been subject to cases around what “service” means, who has the “authority” to accept service of a notice on behalf of a tenant, etc;
• Complex notice procedures to end leases, or propose new leases:
• A landlord cannot end a lease generally without serving a “Section 25 Notice” and it has to have one of several statutory “grounds” to end the lease. Likewise if a landlord wants to propose a new lease, it must serve a Section 25 Notice. Alternatively it can respond to a tenant “Section 26 Notice” (see below);
• A tenant has to serve a “Section 26 Notice” to propose a new lease to its landlord, if a Section 25 Notice has not been served;
• A tenant can serve a “Section 27 Notice” to terminate a lease subject to specific time periods but there are different types of Section 27 Notice.
• When renewing leases landlords have to pay careful consideration to their statutory obligations under the Minimum Energy Efficiency Standards. This can involve requesting extensive lease amendments e.g. allowing entry to carry out energy upgrade works, to ensure that the tenant co-operates or to ensure that tenant alterations do not alter the energy performance rating after the building has been refurbished. There is little case law on how EPC upgrade works and the landlord’s MEES obligations align with the 1954 Act.

There is the O’May case (the assumption that the renewal lease terms will broadly follow the terms of the previous lease, unless the party who wants to move away from those terms has a good reason).

If the landlord decides it is better to terminate a lease and remarket once energy upgrade work is done, it has to look at the grounds for termination under the 1954 Act, but this is likely to be an expensive and drawn out legal process and there is no specific energy performance upgrade ground (and the landlord may not actually want to lose its tenant).

• Turnover rents (usually based on a percentage of tenant turnover payable in addition to a base or fixed rent) are common in retail and bar and restaurant leases. In determining a new rent in 1954 Act renewal proceedings, a court has jurisdictional issues. Based on a County court decision which is only persuasive (JD Sports), a court might hold that it is inappropriate to determine a turnover rent for a retail unit where it was impossible to know what the turnover of the hypothetical tenant would be (this would be inconsistent with certain statutory disregards of s.34 of the 1954 Act e.g. the goodwill of the tenant).

What could the Law Commission do?

• The 1954 Act provides for two types of notice if either party wishes to propose a new lease at the end of the term; there could be one type of such notice and the earlier notice would still prevail;
• The grounds for termination under the 1954 Act could be upgraded to accommodate EPC upgrade works specifically (where legally required), if a tenant refuses to accept the requisite amendments to a lease after a certain time period;
• The declaration process to contract a lease out of the 1954 Act is unnecessarily lawyer led – as to get around the 14 day cooling off period, a tenant has to make a statutory declaration before a solicitor. This tends to penalise smaller tenants and make the process protracted as they do not always have easy access to solicitors. The Law Commission could consider removing the declaration procedure altogether so that the lease itself is enough to confirm that it is not inside the 1954 Act, so long as a Warning Notice has been served (or even without notice). The likely concern will be around tenants understanding their rights and understanding what it means to have a lease without security of tenure (as a prescribed notice under the 1954 Act does contain a detailed warning). The 1954 Act could be modernised to allow for the Warning Notice to be served by email so long as it is a valid email address for a tenant or their company director, or person who has the requisite authority to accept the Notice;
• The 1954 Act could be upgraded to specifically deal with turnover rents as they become more common in the leisure and retail market.

Kate Kurtz is an Associate Solicitor at Redkite Law specialising in commercial property and leases. If you have any questions about how the Landlord and Tenant Act 1954 might affect your business, please do not hesitate to contact Redkite’s commercial property team (kate.kurtz@redkitelaw.co.uk).