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No Change, Please: The Initial Results of the Law Commission’s Consultation on Security of Tenure are in
Interim results of the consultation on reforming the Landlord and Tenant Act 1954 confirm that no significant change to the existing law will be forthcoming.
The Consultation
From 19 November 2024 to 19 February 2025, the Law Commission ran a significant consultation on whether business tenancies in England and Wales should continue to benefit from security of tenure. Security of tenure is a right under the Landlord and Tenant Act 1954 (the “1954 Act“) which gives business tenants the option to renew their lease, or the capacity to be financially compensated where this is not possible.
The initial results are in, and the Law Commission has posted its interim statement, addressing the direction the consultation and any resulting reform is likely to take.
The current system is an opt-out model, where business leases automatically include this right to renew, unless it is expressly excluded from the lease.
The Options for Reform
The models of security of tenure proposed in the consultation were:
- No reform, retaining the current opt-out model; or
- Reversing the current model and opt-in; or
- Abolishing security of tenure; or
- Mandatory security of tenure.
The Law Commission has provisionally concluded that the existing ‘contracting-out’ model is the correct approach. The arguments in favour of retaining this were convincing and received the broadest support among consultees.
Many consultees expressed a view that the current model achieves the optimal balance between landlords and tenants. Many also voiced concerns that altering the model could lead to unnecessary disruption in the commercial leasehold market.
Other Key Issues Addressed in the Statement
Excluded tenancies
The 1954 Act currently excludes certain types of tenancies, for instance, agricultural tenancies, and the consultation asked whether the current list of excluded tenancies is still appropriate. The consultees were in favour of the current law and the Law Commission provisionally agrees.
Duration of Tenancies
The 1954 Act also excludes short tenancies of up to 6 months, and this was also consulted on. Views were mixed, but consensus seemed to favour increasing the threshold to 2 years, to give more flexibility to the short-term lettings market. The Law Commission provisionally agrees.
The Future
Substantial changes to the doctrine of security of tenure would have created uncertainty for both existing business leases and those under negotiation at the time of reform.
Property owners and developers value flexibility, which explains the limited appetite for sweeping changes to the current framework.
While often regarded as an administrative burden, with the high thresholds for landlords to establish grounds (f) and (g) remaining a source of frustration, the current model has been rigorously tested, and continues to evolve through case law.
Ultimately, the Law Commission’s final report will present recommendations for reform based on the consultees’ feedback. Any legislative reform will still need to be implemented in the usual way, passing through and receiving Parliamentary approval.
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Strengthened Renters’ Rights – Impact of the Renters’ Rights Bill
The Renters’ Rights Bill (“Bill”) was introduced to Parliament yesterday. According to the Labour Government’s manifesto, the Bill is designed to transform the experience of private renting and includes, as anticipated, the removal of Section 21 ‘no fault’ evictions.
This Bill represents Labour’s answer to the Conservative’s Renters (Reform) Bill, which failed to pass through Parliament before the recent general election. However, certain elements have been retained, such as the Decent Homes Standard and the right for a tenant to request permission for a pet in a rental property.
If the Bill becomes law, then the proposed changes to the private rental sector will have a significant impact on both landlords and tenants.
How Will It Impact Landlords and Tenants?
1. Security of Tenure:
All fixed-term assured tenancies will become periodic, providing tenants with greater security and enabling them to challenge poor practice and unfair rent increases without fear of retaliatory eviction.
2. Abolishment of Section 21 Evictions:
Effective as soon as the Bill becomes law and will apply to all private tenancies. Section 21 ‘no fault’ notices served before the Bill becomes law will continue to be valid until they expire.
3. Change to Possession Grounds:
Further protective measures for tenants (for example, increasing the mandatory threshold for eviction from 2 to 3 months’ arrears and the notice period from 2 to 4 weeks). Strengthened rights for landlords to reclaim properties when necessary (e.g. to move back in or sell). Tenants will benefit from a 12-month protected period at the commencement of a tenancy, during which landlords will be unable to evict them to move in or sell the property. Landlords seeking to rely on this ground will need to provide 4 months’ notice.
4. Right to Challenge Above-Market Rents:
The Bill will allow tenants to appeal above-market rents. Landlords remain entitled to increase rents to the market price and an independent Tribunal will determine this, if necessary.
5. Private Rented Sector Landlord Ombudsman Service:
All private landlords in England with assured or regulated tenancies will be obliged to join. Tenants will be able to use this service to complaint about landlords’ conduct and action. The service will provide binding resolutions and may also compel landlords to take certain steps (e.g. remedial action, payment of compensation).
6. Private Rented Sector Database:
All landlords of assured and regulated tenancies will be obligated to register themselves and their properties on the database. Landlords could be subject to penalties if properties are let without having been registered. Further, the database will allow landlords to access relevant guidance, helping them to understand their obligations and demonstrate compliance.
7. Pets:
Tenants will have strengthened rights to request a pet in the property. Landlords will have to carefully consider the request and will be prevented from unreasonably refusing consent. Landlords will be able to require adequate pet insurance in place to cover the risk of damage.
8. Introduction of a Decent Homes Standard:
The Bill will allow for regulations to be made setting out Decent Homes Standard requirements for private rented sector homes alongside providing local authorities with appropriate enforcement powers.
9. Awaab’s Law:
Extended to the private rental sector, which will allow tenants to challenge dangerous conditions. Landlords will have to take swift remedial action, failing which tenants will be able to commence enforcement action through the courts.
10. Discrimination:
Landlords will retain the right to choose a tenant on the basis of affordability, but not on the basis a prospective tenant is in receipt of benefits or has children.
11. Rental Bidding:
Landlords and agents will have to advertise the rent being sought and will be prevented from asking for, encouraging or accepting rent above the published price.
12. Local Authority Enforcement:
Expansion of civil penalties, wider investigative powers and a requirement to report on enforcement activity.
13. Rent Repayment Orders:
Rent repayment orders will be extended to superior landlords. Further, the maximum penalty will be increased to 2 years’ rent and repeat offenders will be required to repay the maximum amount of rent.
Conclusion
The Bill introduces a raft of measures that are designed to transform the private rental sector. If passed in its current form, the impact on both landlords and tenants will be significant. Whilst tenants will immediately benefit from greater security, it will have far-reaching implications for landlords. We will closely follow its progress through Parliament and shall provide further updates on the proposed legislation in due course.
To discuss any of the points raised in this article, or if you require advice on any property-related issues, then please contact Daniel Blake (dblake@quastels.com), a Property Litigation Partner in our Dispute Resolution team, or fill out the form below.
The Impact of the Leasehold and Freehold Reform Act 2024
If you hold a long lease or are a landlord holding property subject to long leases, this affects you.
Following last week’s surprise announcement of a general election, the Government has rushed through the Leasehold and Freehold Reform Act 2024 (the “Act”) which will grant homeowners further rights and powers over their homes.
Jeff Smith, Labour MP for Manchester Withington, said:
“It is not perfect, [but] It is a step forward, so we are pleased to support this legislation going on to the statute books this evening”
The bill has received Royal Assent and become law.
What Is The Impact Of Leasehold and Freehold Reform Act 2024?
- Tenant right to freehold acquisition: now easier and cheaper, including that Landlord costs will no longer be payable by the Tenant;
- Longer lease extensions: standard lease extension term will be 990 years for both houses and flats (increased from 50 years for houses and 90 years for flats);
- Service charges to be demanded (by Managing Agents/Landlords) in a standard form: Tenants can therefore more easily scrutinise and challenge them;
- Challenging unreasonable charges: it will be easier to challenge unreasonable service charges, empowering leaseholders to dispute them and seek resolution;
- Prohibition on sale of new leasehold houses: Except in exceptional circumstances, new leasehold houses are banned. Purchasers must own freeholds to their homes from the outset;
- Properties which are freehold and leasehold forming part of the same estate have the same rights: Extends access to redress schemes to challenge poor Landlord and/or Managing Agent practice;
- Removal of ownership requirement to apply for enfranchisement. The requirement for a leaseholder to have owned their flat for two years before they can extend their lease is removed;
- Commercial floor space implications: Previously, buildings with more than 25% of its floor space as commercial (e.g. shops and/or office space on the ground floor) prevented Tenants (collective enfranchisement) from acquiring the freehold or the right to manage. The non-residential threshold has been increased 50%;
- Setting a maximum fee for the provision of home buying and selling information: the Act will set a maximum time and fee for the provision of home buying and selling information.
The Following Were Not Adopted:
- Proposed ground rent reforms (to remove ground rent or introduce a cap) and prohibition of forfeiture;
- the Renters (Reform) Bill, that sought to abolish no-fault Assured Shorthold Tenancy evictions.
Implementation
We do not yet know from when these changes will have effect and many questions remain open. For example, (i) the impact of the Act on contracts which have been exchanged and whether parts of those contracts will be void; (ii) the impact on current pending applications for lease extensions – if for instance withdrawn; and (iii) calculations of the value for a lease extension.
Conclusion
In summary, the Act aims to provide leaseholders with further rights, powers and protections over their homes to try and make ownership and management of leasehold properties fairer and more transparent.
We would not be surprised if further reforms are likely and we will publish an update after the King’s Speech, which will be delivered during the State Opening of Parliament (expected to take place on 17 July 2024).
To discuss any of the points raised in this article, please contact Daniel Blake or fill in the form below.