Lease Advisory Insights
Edition 1 • Spring 2025
The Landlord and Tenant Act 1954 Under Review
With the initial consultation, The Landlord and Tenant Act 1954, a cornerstone of commercial property law in the UK, is currently under review. With a consultation period open from 19th November 2024 to 19th February 2025, stakeholders were invited to weigh in on proposed reforms aimed at modernising this pivotal legislation. We spoke to Associate Partner, Nigel Fishwick to explore the potential changes and their implications and it becomes clear that both landlords and tenants must prepare for a shifting landscape.
At its core, Part II of the Act provides business tenants with security of tenure, granting them the right to renew their tenancies upon expiration, unless they have agreed to opt out. This security is a double-edged sword, offering stability for tenants if they have adhered to the covenants set out in their lease, while imposing certain constraints on landlords in relation to how they can terminate a tenant’s business tenancy. Part II of the Act also outlines mechanisms for opting in and out of this security.
Tenants automatically have the right to renew their lease on expiry unless they have agreed to exclude this right (“opted out”), while landlords can exclude the tenant’s right to renew, this must be done formally by serving a standard form of notice (Statutory Declaration) on the tenant which the tenant must formally accept.
This is the first phase of the Law Commission’s reform of the Landlord and Tenant Act 1954 Part II which affects Business Tenancies, this project focuses on security of tenure. It will later be followed by a more technical consultation, which will explore the detail of how the recommended model should work.
The consultation is exploring several potential reforms to bring the Act in line with contemporary commercial realities:
Security of Tenure Models: The current “contracting-out” model is under scrutiny, the following options are being considered:
1. No security of tenure (abolish the 1954 Act). Tenants would no longer have a right to renew at the end of their lease, but the parties could agree an option to provide security. Minimum tenant protection.
2. A contracting in regime. The default position is that tenants would not have security of tenure, however the landlord and tenant can agree to “opt in” so that the tenant does have security of tenure.
3. “A contracting out” regime (The Current Position). Essentially leave the Act as drafted. The default position is that tenants do have security of tenure, but the landlord can “opt out” to remove this security.
4. Mandatory Security of tenure. Security is compulsory and neither party can contract out of the security of tenure regime. Maximum tenant protection.
Each option presents unique benefits and challenges, requiring careful consideration of their long-term impacts on the market.
Types of Tenancies: The review is also assessing whether the types of business tenancies that benefit from security of tenure are still appropriate. This could lead to a more tailored approach, ensuring that the Act better reflects the diverse needs of modern businesses.
The proposed changes bring both opportunities and challenges for landlords and tenants alike:
For Landlords:
• Administrative Burden: The current system can be seen as somewhat burdensome, potentially delaying lease completions whilst increasing legal fees. Simplifying these processes could streamline operations and reduce costs.
• Opposition to Renewal: Landlords currently face difficulties in opposing renewals under the statutory grounds. Reforms could provide clearer, more flexible criteria, balancing the rights of landlords and tenants.
For Tenants:
• Understanding Rights: The complexity of the opt-out procedure can be detrimental if not followed correctly. Simplifying these processes could enhance tenant awareness and compliance.
• Market Adaptation: The Act may not fully reflect the needs of the modern commercial leasehold market. Updating the legislation could provide tenants with more relevant protections and opportunities.
As the consultation progresses, it is crucial for all stakeholders to engage actively. The goal is to create a balanced framework that supports both landlords and tenants, fostering a dynamic and resilient commercial property market. By modernising the Landlord and Tenant Act 1954, the hope is that it can remain fit for purpose in the 21st century, addressing the evolving needs of businesses and property owners alike.
Once the Law Commission has analysed the responses and reached conclusions it is expected that a second technical paper will be issued for consultation which will consider the broader detail of how the preferred model and any change in its scope would actually work. Currently, no timing has been provided for the second consultation paper, this will only be confirmed once all the analysis of the responses to the first paper has been concluded. Scan or click the QR code to learn more about the journey so far.
Fisher German will keep providing updates on this topic and our experts are available should you have any concerns or questions that you would like to discuss in more detail.
Navigating the Challenges and Benefits of Green Leases for Landlords
and Tenants
Green leases, which incorporate sustainability obligations for both landlords and tenants, offer numerous benefits but also come with their own set of challenges. One of the primary challenges for landlords is the significant upfront investment required to implement energyefficient upgrades, such as LED lighting, efficient HVAC systems, and smart meters. We spoke to Ishfaq Hussain, a partner in our lease advisory team, to learn more about how these costs can be a barrier, especially for smaller property owners and how tenants may face higher initial costs due to the need to comply with green lease requirements.
The complexity of green leases can also be a hurdle. For landlords, these leases are often more complex than traditional ones, requiring detailed negotiations to align sustainability goals and responsibilities. Tenants may find that the complexity leads to longer negotiation periods and the need for legal and sustainability expertise. Maintaining the standards set out in green leases can be challenging for landlords, requiring ongoing monitoring and compliance efforts. Tenants must adhere to the sustainability practices outlined in the lease, which can involve regular reporting and adjustments to their operations.
The Minimum Energy Efficiency Standard (MEES) Regulations are increasingly impacting the commercial property market in England and Wales. These regulations extend beyond the basic rating levels required at the time of letting or leasing, influencing lease renewal negotiations, alienation, dilapidations, and rent reviews. The Energy Performance Certificate (EPC) ratings now directly affect both rental and capital values.
An EPC registered for a property is likely to be inaccurate if the assessment is old. Generally, the older the assessment, the less likely it is to reflect the current rating of the property. This inaccuracy can be attributed to developments in EPC methodology. In June 2022, a significant change in EPC assessments occurred, correlating with the ‘carbon factor,’ which measures the carbon emissions created by the amount of electricity used. This change resulted in a reduction of over 50% in carbon emissions associated with grid-supplied electricity. Consequently, properties with primarily electrically powered heating/cooling systems have seen EPC outcomes improve by 1-3 grades, while those with gas/oil-fuelled systems have seen their ratings worsen by 1-3
grades. This trend is expected to continue, with the government’s target date set for April 2030.
Lease events, particularly those from the early 2000s, are most affected by EPC changes. Tenants may dispute the validity of outdated EPCs, especially if the property uses gas heating, potentially complicating lease negotiations. A tenant with an EPC on the subject property that identifies the EPC as no longer accurate may dispute the property’s ability to be let, challenging the assumption in the lease that the premises are ready and available to let. This situation could place landlords in a difficult position, necessitating careful consideration when entering contractual obligations.
The impact of the carbon factor change is particularly significant for landlords with gas-fired heating systems, as improvements typically involve significant system replacements. Green leases, which incorporate sustainability obligations for both landlords and tenants, present both benefits and challenges. One primary challenge for landlords is the substantial upfront investment required to implement energy-efficient upgrades, such as LED lighting, efficient HVAC systems, and smart meters. Ishfaq Hussain, a partner in our lease advisory team, highlights that these costs can be a barrier, especially for smaller property
owners. Tenants may also face higher initial costs due to the need to comply with green lease requirements.
Despite these challenges, green leases offer numerous benefits. They promote energy efficiency, leading to lower operating costs and enhanced property values for landlords. Sustainable buildings are more attractive to eco-conscious tenants, potentially increasing occupancy rates. Tenants benefit from reduced utility bills and a healthier indoor environment, which can improve employee productivity and satisfaction. Properties with green leases often see an increase in market value due to their sustainability features and lower operating costs. For tenants, occupying a green building can enhance their corporate image and help meet their own sustainability goals.
Green leases also help landlords stay ahead of environmental regulations, avoiding potential penalties and ensuring compliance with sustainability targets. Tenants can align their operations with environmental regulations and corporate ESG (Environmental, Social, and Governance) goals.
The UK government is currently consulting on reforms to the Energy Performance of Buildings regime, and the final changes to EPC requirements have yet to be confirmed. This uncertainty can make it challenging for both landlords and tenants to plan and invest appropriately, as future regulations could impact property values and operational costs. While green leases present challenges, the longterm benefits for both landlords and tenants often outweigh the initial hurdles. By fostering collaboration and focusing on sustainability, green leases can contribute to a more sustainable and efficient real estate landscape.
Richard Beaumont London & South East