Does the Landlord and Tenant Act 1954 need modernising?

Part II of the Landlord and Tenant Act 1954 (the ‘Act’) affects a large number of properties and was created to provide security of tenure to business tenants.

The Act applies to leases granted to tenants of business premises and the tenant or tenants must be in occupation of the relevant premises for business purposes in order to benefit from the Act.

The Act initially aimed to protect tenants from the risk of paying rent that exceeded market levels and from tenants being forced to leave their business premises due to opportunistic landlords in a diminished commercial property market. The Act therefore provided security of tenure to business tenants with controls around the terms and the amount of rent in renewal leases.

However, business practices and the property and real estate landscape have changed dramatically in the last 70 years since the Act was passed, and there is increasing debate as to whether this Act requires modernisation/reform.

If a property lease is ‘inside the Act’

One fundamental part of the Act is that if a property lease is ‘inside the Act’ when it comes to the end of the contractual term, a tenant is entitled to a new lease on the same or similar terms as the original lease, subject to reasonable modernisation and at a market rent. In contrast, if a business lease has been properly contracted out of the Act, a tenant is not entitled to the protection afforded by the Act.

For example, if a business or individual entered a lease that was ‘in the Act’ with the intent to use the property for its business purposes, this tenant would be entitled to a renewal of the lease following contractual expiry, as long as the business still fulfilled the requirements ‘in the Act’, including that the property was still being used for the purposes of the tenant’s business.

The tenant would be entitled to the same or similar terms as the current lease and market rent, having regard to the terms of the tenancy (other than those relating to rent).

Business tenancies and conditions for lease renewal

The case of Royal Borough of Kensington & Chelsea v Mellcraft Ltd 2024 is a notable case relating to business tenancies and conditions for lease renewal under the Act.

The dispute arose from a lease, granted in relation to premises known as ‘the flat’ being used by the respondent, Mellcraft Limited, for both residential and business purposes.

The Royal Borough of Kensington & Chelsea Council (‘Council’) granted a five-year tenancy of the flat to Mellcraft Limited (‘Mellcraft’) for use as a single residential dwelling.

The sole director of Mellcraft lived in the flat with his family and conducted Mellcraft’s business from it. Mellcraft had no other business premises.

The respondent occupied the flat for business purposes

The case addressed two primary issues, the first, whether the respondent occupied the flat for business purposes at the time the contractual term of the lease expired.

If so, this would entitle Mellcraft to a renewal of the tenancy under the Act.

Secondly, whether the Royal Borough of Kensington and Chelsea Council had fulfilled the requisite intention to satisfy the test in section 30(1)(g) of the Act to successfully oppose a lease renewal, on the grounds that it intended to occupy the holding for its own business purposes.

The court found that Mellcraft had in fact occupied the flat in a capacity that satisfied the requirements of a business tenancy as set out in the Act.

The court also found that the Council had not met the test in section 30(1)(g) of the Act and it therefore failed to establish its intention to occupy the flat for business purposes.

Intended to use the flat to house the homeless

The Council’s evidence found that it intended to use the flat to house the homeless by granting a tenancy of the flat to a person/persons to whom it owed a statutory duty.

The County Court held that the Council did not, however, have the requisite intention due to the Council intending to grant a tenancy to a third party. The Council appealed.

The High Court dismissed the Council’s appeal both as to whether the tenant was in business occupation and therefore entitled to a new lease and that the Council intended to occupy the premises for the purposes of its own business.

This case clarifies that not only must a tenant’s evidence for occupation for business purposes be significant, but also, a landlord must intend to retain a degree of control over the premises to successfully argue against a lease renewal on own occupation grounds.

Perhaps, had the Council’s intention been to grant a licence rather than a tenancy, the result might have been different?

Looking ahead – is the Act effective?

The effectiveness of the Act is something which has recently sparked debate. Following the Mellcraft Ltd case and other high-profile cases, such as the Sainsbury’s Supermarkets Ltd Vs Medley Assets (2024) case, which demonstrated the strength of tenants’ security of tenure, there has been renewed calls as to whether this legislation is ageing and requires modernisation.

The Law Commission’s long awaited wide review of the Landlord and Tenant Act 1954 purports an emphasis on creating a legal framework to make sure that legislation is clear, easy to use and beneficial to both landlords and tenants.

The review has been pushed to Autumn 2024 and it therefore remains to be seen whether, upon examination by the Commission, there will be any dramatic change/simplification on what constitutes business occupation for the purposes of the Act.

by Michelle Eyre

Blacks Solictors

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