The Law Commission (the Commission) has published its interim statement on business tenancy reform, providing clarity on the future of the Landlord and Tenant Act 1954 (the 1954 Act). This article addresses the current position against the issues raised in our January analysis, and sets the direction for upcoming changes.

Provisional conclusions from the interim statement

The Commission received over 160 responses and has reached a few key provisional decisions:

• The current contracting-out model will remain
  (i) Consultees told the Commission that the current model "strikes the best balance between landlords and tenants".
  (ii) Many consultees were concerned that changing the model would cause "unwarranted disruption to the commercial leasehold market".
• The current distinction in the legal process applying to agricultural tenancies and business tenancies should remain.
• The threshold for security of tenure is likely to be increased
  (i) There is support for increasing the duration of tenancies that benefit from security of tenure under the 1954 Act, from the current six-month period to two years.
  (ii) The Commission's second consultation paper expects to consult on this in more detail.

Our comments

The interim statement provides welcome certainty – by retaining the contracting-out model, a complete upheaval of the commercial leasehold market won't be required, and existing flexibility will remain.

However, the proposed two-year threshold will require careful consideration. The proposal may give tenants the certainty of longer occupation, less documentation and avoid the need for short-term business tenants to perform the cumbersome contracting-out procedure. On the other hand, it could lead to more complexities with those involved in short-term lettings, and could significantly alter flexible workspace and short-term business arrangement dynamics. Asset managers and landlords will continue to proactively manage expiring tenancies, albeit less frequently, to ensure that security of tenure is not acquired by their tenants when the two-year term ends– just as they do now with the current model.

Part of the problem is that the current system is too prescriptive and complex for non-lawyers to navigate effectively, and consequently it can be difficult to understand and execute documents under the 1954 Act properly. Parties may not manage the documents or process properly, which can result in tenants unintentionally obtaining security of tenure. We hope that the Commission will address these issues in the second consultation and give some consideration to whether technology solutions could be used to simplify the contracting-out process and reduce such problems. The Commission has indicated that the second consultation will address "potential reform to the contracting-out procedure", but it remains to be seen what this means in practice.

What's next?

We look forward to understanding what the technicalities of reform might look like in the Commission's second consultation paper, which will be based on these provisional conclusions.

The second consultation is expected later this year, although no date has been confirmed yet. Subsequently, the Commission's recommendations will be set out in a report to be published following the consultation.

If you have any queries regarding the 1954 Act, the consultation process, or how these potential changes might affect your business, please get in touch with a member of our team.