The Law Commission’s instruction to review the Landlord and Tenant Act 1954 is an important opportunity to change a process that at times infuriates landlords and tenants alike – though often for differing reasons.
The potential reform has been given the following priorities:
- Creating a legal framework that is widely used rather than opted out of;
- Supporting the efficient use of space in high streets and town centres, taking into account wider government priorities, such as the Net Zero and Levelling Up agendas; and
- Fostering a productive and beneficial commercial leasing relationship between landlords and tenants.
Leaving aside our views on the Government’s ambitions of regenerating high streets, reducing anti-social behaviour and Levelling Up through this exercise, there are important commercial considerations that need factoring in, in particular:
- Streamlining and accelerating the renewal process.
- Reducing the costs involved in renewals.
- Taking the task of rental valuation away from the Courts and put in the hands of experienced property professionals.
- Encouraging Expert Witnesses/parties to collaborate and find common ground as early as possible.
- Ensuring real and substantial cost penalties for unrealistic valuations/lease clause requests.
- Adding clarity to the more major points of discussion that often lead to dispute and add delay, i.e. criteria for the length of the new term, factoring into the valuation who requested an unusual lease term, the lack of a rent-free for fitting out assumption etc.
- Assisting the landlord in undertaking environmental improvements to premises.
Any amendments should be made with practical guidance from the property sector, as well as legal input.
It is vital that the consultation engages with all stakeholders. Any improvements to the Act should be for the benefit of all parties, including the everyday solicitor and surveyor practitioners who will understand and experience the quirks of the Act more than most.
While many complain about the cost of the current lease renewal process via Court, the positive side effect is that lease renewal disputes rarely reach a Court hearing. That cost level nearly always ensures the parties to the dispute reach a compromise. Considering this logic, should the process become more streamlined and cost-effective, it will likely lead to a higher number of disputes going ‘all the way’ - potentially in line with rent review disputes.
Should amendments include valuation disputes being referred to Arbitrators instead of a judge, it will be imperative to delay or phase in any changes to account for the current insufficient numbers of Arbitrators / Independent Experts. The RICS will also need to entice more practitioners to train to become Arbitrators to address these shortages.
Finally – despite the high street retail leaning aims of this review, it is important to remember that the Act covers all sectors, and unintended consequences of amendments are a real risk. Therefore, change for the sake of change should definitely be avoided.
WORKING OUTSIDE THE ACT
Excluding leases from the Act is a valuable tool for landlords/developers and enables the leasing of premises which would otherwise be left vacant. Removing the security of tenure and compensation provisions from leases allows landlords/developers to lease premises on a short-term basis while not harming their redevelopment plans. This has the benefit of adding vitality to a location during a redevelopment preparation phase, as well as facilitating the long-term investment developers are making – which is to the benefit of local communities.
They also allow landlords to take more risks with untested concepts, unusual uses, tenant mix or tenants with poor financial backing in the knowledge they will be able to obtain vacant possession at lease end if desired as they will not be obliged to offer a new lease or pay compensation. This again can add vitality and give start-up businesses a chance – not just when it comes to new high street retail concepts but looking wider as well, for example, to a brewery or dark kitchen in an industrial warehouse.
In summary, changes to the Act would be welcome but should be carefully considered with the input of all stakeholders, including around excluded leases. There is potential for improvement, but it needs to be made with a full understanding of the factors that affect the surveying element of lease advisory renewals as well as the legal framework that underpins this work.