Time for a Change? Re-evaluating the LTA 1954

The LTA 1954 came into effect shortly after the Second World War and, given how the landscape of the world has changed in the past 70 years, some say reform is long overdue. The Law Commission published its consultation paper dated 19 November 2024 which set outs its proposals to reform the LTA 1954 and invited members of the public to complete a survey on the proposals.

The reforms could have significant implications on commercial landlord and tenants alike and drastically change commercial property practices. Changing the long-established status-quo of the LTA 1954 will no doubt lead to uncertainty and raise plenty of questions to be answered.

Part II of the LTA 1954

Under the current legislation, business tenants benefit from security of tenure (i.e. a right to remain in a property beyond the fixed contractual term) unless the parties have contracted out of the provisions of Part II of the LTA 1954.

The ‘contracting out’ system has been in place since 1970 and there is a strict process to follow to ensure a lease is lawfully contracted out.

Where a tenancy is not contracted out, either the landlord or the tenant can request the other to enter into a new contractual lease and, if necessary, apply to the court to determine the terms of that new tenancy.

Landlords are limited in their ability to recover possession of properties if a lease is not contracted out and in order to obtain possession, a landlord must rely on, and satisfy the legal test for, one or more of the statutory grounds for possession set out in Section 30(1) of the LTA 1954. This is common ground for disputes.

The Consultation Paper

In its consultation paper, the Law Commission set out four possible reforms to Part II of the LTA 1954, being:

1. Mandatory security of tenure – all business tenancies would benefit from security of tenure and there is no right for parties to contract out.
2. No security of tenure – no business tenancies would benefit from security of tenure and tenants do not have a statutory right to remain or to obtain a new lease.
3. Contracting in – parties can ‘contract in’ to the provisions of Part II of the LTA 1954 (i.e. the opposite to the current procedure).
4. Contracting out – the legislation and procedure would largely remain as it is currently.

The report considers the pros and cons of each proposed model as well as its potential impact on the commercial letting market. The Commission has also considered how other jurisdictions regulate business tenancies. In both France and the Netherlands, commercial tenants have a right to a minimum duration of their tenancy (assuming the tenancies are longer than the prescribed minimum length) but tenancies are subject to mandatory break clauses.

In Australia, the rules vary from state to state but generally there are rights for commercial tenants in relation to minimum duration, willingness to enter into a new tenancy and rights to renewal (assuming the tenancies are longer than the prescribed minimum length). New Zealand does not have laws providing tenants with a statutory right to remain.

Interestingly, the Law Commission is not looking to adopt a system similar to those adopted in France, the Netherlands or Australia but rather an adaption of the current model similar to what has been adopted in New Zealand, Northern Ireland (a mandatory security of tenure model) and the Republic of Ireland (a contracting out model subject to minimum length of occupation).

The next step is for the Law Commissions to compile and review the surveys from the public. It will then publish its analysis of the response before finalising its report.

Some of the above proposed models could favour landlords whereas others could favour tenants. There is no guarantee how the law will change (or if it will change at all) and what impact this will have on the commercial lettings market. Whilst the LTA 1954 is not likely to change anytime soon, anyone with an interest in commercial property will be keeping a close eye on the Law Commissions findings!

If you would like to read the full report, a link can be found here: Business Tenancies: the right to renew – Law Commission

How we can help

Commercial tenancy renewals and termination can often become litigious. We act for both landlords and tenants in advising on renewal and termination of commercial tenancies.

We can advise on your rights depending on your aims and objectives and assist with finding a resolution.