Part II of the Landlord and Tenant Act 1954 provides business tenants of commercial premises with what is known as ‘security of tenure’ and mechanisms for the renewal of leases. The security of tenure safeguards can currently be contracted out of by the parties to a lease, and there are categories of tenancies to which provisions contained within Part II of the Act do not apply. However, most current commercial leases will fall within the scope of Part II of the Act, with security of tenure attaching.
Essentially the Act gives tenants the comfort of knowing that when their lease term expires, should they wish to remain in the premises, they can seek a renewal lease. The Act demands that the starting point for any renewal lease is the terms of the existing lease. As such, landlords are precluded from being able to significantly vary the provisions of the existing lease, without the tenant’s co-operation. Equally, the tenant cannot expect swathes of changes to the existing terms without the landlord giving consent.
The parties to a 1954 Act lease can agree any revision to the lease terms on a renewal. Nonetheless, it is often the case that one party’s proposals may be unattractive to the other. Where a tenant does seek a renewal lease, the Act does give some flexibility for either party to ask a Court to determine a variation to lease terms, where agreement cannot otherwise be reached. However, the process is time consuming and can become expensive, where the dispute cannot be resolved and requires judicial determination at a trial.
Aware of the parameters of the Act, parties who are legally represented will often look to agree changes collaboratively, to avoid protracted negotiations and ultimately an application to Court. This is not always possible and potentially one party may act unreasonably in refusing or demanding changes at the renewal stage.
An additional cause for disagreement has been recent legislative changes imposed on landlords to improve the energy efficiency of commercial premises. Introducing so called ‘green lease’ clauses in renewal leases can often lead to dispute and disagreement in the lease renewal negotiations. For example, some tenants may assert that their additional inclusion represents an unacceptable departure from the existing lease terms, going beyond mere modernisation. Whereas landlords will require their inclusion to ensure that they do not fall foul of environmental legislation both to implement changes where necessary to comply and / or to meet the landlord’s own social and corporate sustainability policies.
Where parties to the lease cannot agree terms, Section 35 of the Act applies. The leading case of O’May v City of London Real Property Co Ltd [1983] stated the general propositions to which the Court will have regard to in determining the new lease terms under Section 35:
- The Court must consider the terms of the existing lease;
- It is for the party seeking to introduce the change to persuade the Court that the change should be allowed;
- The change (additional new term/s; removing or amending an existing term/s) must be fair and reasonable;
- There must be a good reason to impose the new term / allow the change;
- The Court’s discretion is wide; and
- An existing term may be out of date or unsuitable, given the passage of time, and appropriate for removal or substitution.
The above assumes both the landlord and tenant are agreeable in principle to a renewal lease. However, there are 7 grounds available to a landlord to oppose a lease renewal (known as Grounds a, b, c, d, e, f and g). If the Ground is made out, then the tenant will not receive a new lease, and will be required to give up possession.
As an example, Ground f can be relied upon by a landlord looking to demolish or reconstruct the premises and requires possession for the purpose of carrying out the work. The Act as currently drafted can be limiting and fatal to a landlord’s opposition in reliance upon Ground f, for example, where it is looking to demolish and reconstruct a site on a piecemeal basis, with separate leases of parts expiring at different times, and planned construction being delivered in stages. Modern redevelopment practices for commercial sites could be better served by amendment to the current legislation.
Part II of the Act has much to be applauded for. However, it is recognised that the commercial property market has changed since the 1950’s, and the framework would benefit from reform.
In 2023 the Law Commission was instructed to conduct a review of Part II of the Act. The first Consultation Paper was published in November last year, and the consultation very recently closed on 19 February 2025.
In summary, the Law Commission has considered the pros and cons of the existing provisions which allow landlords and tenants to agree to disapply (known as ‘contracting out’) security of tenure. Alternative models to the existing provisions were also considered:
- Abolition of security of tenure
- Mandatory security of tenure
- Contracting in
A second Consultation Paper is expected to be published following the Law Commission’s analysis of their first Consultation Paper and survey. The timing for delivery of that second Consultation Paper is currently unknown. Therefore, it is currently unclear whether the recommendations may amount to a tinkering with the existing provisions or more of a major overhaul.
Should you require legal advice on the current procedure for commercial lease renewal and / or advice on opposing a renewal, please contact me, Helen Williams, on 01392 401176 or by email to H.Williams@stephens-scown.co.uk