Landlord and Tenant Act Reforms

The reforms to the Landlord and Tenant Act 1954, Part II came into force in June 2004.

Here is a whistle-stop tour of the principal changes:

New Leases

Previously, only the tenant could apply to the court for a new lease. Under the new regime, the landlord is also able to apply to the court for renewal. Once one party has applied for renewal, the other will not be able to do so. The tenant will be unable to apply for renewal if the landlord has already applied for termination under the new provisions (for which see below). This is to prevent delay on the part of the tenant.

The Tenant's Counter-Notice

This is abolished.

The Section 25 Notice

This now has to set out the landlord's proposals for the new tenancy. The new Section 25 Notice will contain a "health warning" explaining that the landlord's proposals are merely an opening bid in the negotiations and do not bind either party.

The Date For Proceedings

The tenant no longer has to issue proceedings for renewal in the current two months - four months period. It can now do so by the date specified in the S25 Notice, or by the expiration of any extended time agreed between the parties. Any proceedings must be issued by the S25 date or the extended date; otherwise, the tenant will lose its rights. Any extension must be agreed before the expiration of the date in the S25 Notice or before the expiration of any extension already agreed.

The Contested Renewal

The changes do not affect the operation of Section 30 (1), but they enable a landlord to get into court a lot quicker than previously. The landlord can now issue termination proceedings after service of the S25 Notice, and is not bound to wait for the renewal proceedings. A new deadline is that specified in the landlord's Section 25 Notice or the day immediately before the date specified in the tenant's Request. Where the tenant has made a Request for a new tenancy, it may not apply for a new tenancy until the landlord has either served a counter-notice or has had a two-month opportunity in which to do so.

The Corporate Veil Is Lifted

There has been decided authority, which provides that if, for example, an individual is the lessee but their limited company occupies the premises for the purpose of a business, the individual has no right to renew. The amendments extend the qualification for renewal to wider categories of tenants.

An individual tenant would satisfy the criteria for renewal if a company under his or her control occupies the premises or carries on a business there. Similarly, a company would satisfy the criteria if the controlling shareholder occupies the premises or carries on a business there.

Following on from that, Section 30 (1) (g) of the Act currently enables the landlord to oppose the renewal of the lease if it wishes to occupy the premises for its own residence or business. The amendments provide that businesses under the same ownership and control as the one qualifying under the Act should be able to operate the statutory procedures even though there may be different legal entities. Moreover, the amendments will extend the current five year rule under S30 (1) (g) to this wider category of landlords. Therefore, it may no longer be possible for an acquiring party simply to buy the shares in the landlord company to defeat the five year bar.

Interim Rent

Until now, the Act has precluded a tenant from applying for an interim rent. The new arrangement allows the tenant, as well as the landlord, to apply for interim rent. To avoid duplicate proceedings, a party may not apply if the other has already applied and not withdrawn the application. The court will be able to consider an application for interim rent, even if either party has withdrawn its application to renew or terminate the lease.

Parties will not be able to apply for an interim rent once the new tenancy has run for more than six months after the end of the old tenancy. The rent will be payable from the earliest date for termination of the tenancy which could have been specified in a landlord's Section 25 Notice or the tenant's Request, irrespective of which party applies for the renewal or interim rent.

A new method of establishing interim rent will apply where a new tenancy is granted and three conditions are satisfied:

	a landlord's Notice or tenant's Request applies to the whole of the property let under the current lease
	the tenant occupies the whole of the property; and
	the landlord does not oppose the grant of a new tenancy

Most importantly, where the new method of establishing interim rent applies, interim rent will usually be the same as the rent for the new tenancy. However, the courts will vary this amount if either party is able to establish that:

	Rental market conditions have changed significantly since the date when interim rent became payable, and/or
	The occupational terms (for example, repairing or insurance obligations) for the new lease have changed significantly from those in the old lease

Where rental market conditions alone have changed, the court will base the interim rent on the occupational terms of the new tenancy, but the rent will be valued according to open market conditions applying on the date from which the interim rent became payable. Where occupational terms alone have changed, or both rental market conditions and occupational conditions have changed, the court will use its discretion to fix an interim rent which is reasonable for both parties. In all other cases where the above conditions do not apply, the existing method of determining interim rent will continue as before.

Compensation

There are changes to compensation where the landlord opposes renewal on one of the mandatory grounds. Where parts of the premises have been occupied for different lengths of time, compensation will be calculated for each part separately. Higher rate compensation will apply only to those parts that have been continuously occupied for 14 years or more. The amendments to the Act do, however, extend the availability of compensation to cases where the tenant quits the premises after failing to apply for renewal, or withdrawing an application, as a result of a misrepresentation or concealment of material facts by the landlord. Up to now a tenant might be unable to claim compensation where he or she has failed to apply for a new tenancy or withdrawn an application as the result of action by the landlord. This is now rectified by enabling the tenant to recover compensation for misrepresentation even where it does not make an application to the court for renewal.

Exclusion Orders

Under the new regime, the need to apply to the court for an exclusion order or to sanction an agreement for surrender is abolished. In its place, the landlord has to give a "health warning" in a prescribed form to the tenant not less than 14 days before the date that the lease is to be granted. If the parties want to complete the lease earlier than the 14 day period, the tenant must enter into a Statutory Declaration, to be made before a solicitor, in the terms of a statutory instrument that is being brought into effect. Broadly, the same provisions relate to an agreement to surrender.

Statutory Information

Under Section 40, a landlord is supposed to give information to the tenant and vice versa if an appropriate Notice is served. The single most important aspect of the amendment to S40 of the Act is that this must be updated in the event of any relevant change or corrected in the six months following the date that the Notice is served. The court can now order damages for breach of statutory duty and/or compliance with the Notice

Tenant's Determination Under Section 27

Under Section 27 (2) of the Act, at present a tenant can bring its tenancy to an end by a Notice of not less than three months but which must expire on the next quarter day after that three month period. This is now abolished. The tenant need only give Notice of three months duration ending any time. In accordance with decided authority (Pearl-v-Esselte), if a tenant is not in occupation of the premises for the purposes of a business at the date that the lease comes to an end by effluxion of time, its rights to renew are lost.

It is still open to the tenant to give a Notice under what was Section 27 (1) but, to some extent, this is superfluous if the premises are not being used for business purposes on the contractual determination date. What the Section 27 (1) Notice does, it seems to me, is give an advance warning to the landlord that come the end of the term the tenancy will not be continuing.

Term of Lease on Renewal

The new maximum term that the court can award for a new lease is 15 years, as it fits better with modern practices of three- and five-yearly rent review spreads.

Split Reversions

One of the other anomalies of the Act (and there have been many which have been the subject of judicial decision) is where the reversion is split, i.e. there are two or more competent landlords. The Act makes clear that where different landlords own parts of the property let, "the landlord" for the purpose of the Act will be all of the owners collectively. This means that landlords of a split reversion need to take concerted action, but with separate Notices relating to the individual parts of the premises. Similarly, a tenant would need to serve separate Notices on all the landlords, either taking proceedings against all of them separately or naming them all as parties in a single set of proceedings. I am bound to say that, whilst this reform may seek to assist practitioners and tenants, there may well be problems in a situation where one of three reversionary landlords wishes to redevelop, another wishes to occupy for the purpose of its own business or residence, and the third does not wish to oppose at all. This is the reason why the landlords must act in concert, but if a demise, for example, physically straddles different estates where the landlords have different objectives, it seems to me there is still trouble ahead.

Many of these amendments are long overdue. However, if the course of the '54 Act amendments run anything like the original statute, there may still be trouble ahead

Article first published February 2004
Revised August 2006