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Property Law - Removing the Elephant Traps - Reforming the '54 Act

By : Rupert Higgins

On 10th November the House of Commons approved the Regulatory Reform (Business Tenancies) Order 2003 bringing into force, in six months' time, various amendments to the Landlord and Tenant Act 1954. The amendments were considered suitable for introduction by way of statutory instrument under the Regulatory Reform Act 2001 because their effect is to remove or to reduce burdens placed by the 1954 Act as currently in force. The amendments are important not just in themselves but for what they say about the government's interpretation of the 2001 Act and the opportunity it affords for achieving radical statutory reform without the need to introduce bills in Parliament. What follows is necessarily a concise overview of the principal amendments to the 1954 Act brought about by the 2003 Order.

Contracting Out

Joint applications to the court for leave to grant tenancies outside the 1954 Act are abolished. The new regime requires the Landlord to serve a "health warning" notice on the tenant urging the tenant to obtain independent legal advice before accepting the tenancy. The tenant has to sign a declaration that this warning has been given, and if the warning is not given a clear 14 days before the tenancy commences, that declaration must be a statutory declaration. The tenant is thereby forced into the arms of a solicitor even if only for the purpose of swearing the declaration.

Occupation by Companies

The current arrangements extend statutory protection to the situation where a corporate tenant is part of a group of companies but the business is carried on at the premises by another company in the group. The 2003 Order further extends this protection where the tenant is an individual with a controlling interest in a company carrying on a business in the premises, or vice versa. A person has a "controlling interest" in a company if, had he been a company himself, the other company would have been his "subsidiary" within the meaning of s.735 of the Companies Act 1985.

Applications for New Tenancy and the New timetable

Perhaps the most radical reform is in the system for applications to the Court for new tenancies. Under the new scheme either Landlord or Tenant can apply for a new tenancy, and the Landlord can apply for an order from the Court to the effect that there should be no new tenancy. So the Landlord's grounds of opposition to a new tenancy will become positive grounds for possession. The Landlord also does not have to wait for 3 months to see if the Tenant will apply for a new tenancy. He will be able to force the issue earlier by making an application himself as soon as he has served his s.25 Notice, or as soon as the Tenant has served his s.26 request. The strict timetable for service of notices and applications has also been swept away both in terms of its complexity and its unforgiving rigidity. The only time limit for making an application to the court is the date stated in the s.25/s.26 notice and even that can be extended by agreement between the parties, provided that any such agreement is made before the expiry of the original time limit which it seeks to extend. No form for such agreement is prescribed, not even that it should be in writing, thus permitting real scope - for the first time in 1954 Act cases - for arguing agreements and estoppels having the effect of extending time limits in this otherwise fertile ground for professional negligence claims.

Predictably perhaps, as some existing elephant traps are filled in so more are dug by the 2003 Order. The required form of a s.25 notice is to be changed, requiring the landlord to set out, where he does not oppose the grant of a new tenancy, the terms he proposes. The inclusion of proposed terms is a pre-requisite for the validity of a s.25 Notice. Landlords who simply intend the s.25 notice to contain a wish list of terms must beware. The Central London County Court in Mount Cook v Rosen [2003] 1 EGLR 75 recently applied the Court of Appeal's decision in Cadogan v Morris [1999] 1 EGLR 59 and found that "proposal" in the Leasehold Reform Housing & Urban Redevelopment Act 1993 means a realistic proposal, which in the context of a premium for an extended lease means one which can be justified by expert valuation evidence. It seems inevitable that it will be argued the same reasoning will apply to a Landlord's proposals for the terms of a new lease in his non-opposing s.25 notice.

Interim Rent

The Tenant as well as the Landlord will be able to apply for an interim rent, and the Court will have the power, as it has always had but for obvious reasons was never asked to use, to order an interim rent which is lower than the existing rent. An interim rent will now be payable from the earliest date which could have been inserted in the s.25/s.26 notice (regardless of the date which was so inserted) which will often require the Court to back-date interim rents. Additionally, the cushioning provisions for the calculation of interim rent will not apply against Landlords who state in their s.25 notice or counter-notice that they will not oppose the grant of a new tenancy. Those electing to oppose a new tenancy will be treated in the same way as currently.

Compensation

A new and potentially vicious elephant trap will exist for the successfully opposing Landlord who changes their mind or cannot proceed with their plans. Such landlords must be aware that they are likely to face a claim by their former Tenant for compensation under an entirely new provision - equivalent to the old s.102 of the Rent Act 1977 - enabling a dispossessed tenant to seek redress where his Landlord has obtained an order refusing the grant of a new tenancy by misrepresentation. The same right applies where the Tenant has decided not to seek a new tenancy because of a ground of opposition by the Landlord. In addition to their automatic right to statutory compensation, tenants will be well advised to keep an eye on their former business premises to see whether their departure, which has supposedly been brought about by the Landlord's intention to redevelop, is in fact followed by the arrival of the wrecking ball or instead of the letting agent.