Ordered to Report
DRAFT REGULATORY REFORM (BUSINESS TENANCIES)
(ENGLAND AND WALES) ORDER 2003
1. On 22 July 2002, the Government laid before
Parliament a proposal for a draft Regulatory Reform (Business
Tenancies) (England and Wales) Order 2002, together with a Statement
by the Office of the Deputy Prime Minister (ODPM). We reported
on the Government's proposal on 12 November 2002.
On 17 September, the Government laid a draft order for "second-stage"
scrutiny, together with a second Statement ("the second Statement").
2. The order relates to the leasing of commercial
premises in England and Wales. Its purpose is to amend the provisions
of Part II of the Landlord and Tenant Act 1954 ("the 1954
Act") in such a way as to maintain the principle of the 1954
Act whilst enabling the renewal or termination of business tenancies
to be undertaken more easily.
3. In our earlier report, we concluded that the
proposal was appropriate to be made under the Regulatory Reform
Act 2001 ("the 2001 Act") save in one respect concerning
the provision relating to agreements to exclude security of tenure
("contracting out") and similar provision relating to
agreements to surrender a tenancy.
4. Although the 1954 Act did not originally contain
provision to enable contracting out, following a Report of the
Law Commission, section 5 of the Law of Property Act 1969 (amending
section 38 of the 1954 Act) allowed landlords and tenants to agree
to exclude security of tenure if the agreement were authorised
by the court. In 1992, the Law Commission concluded that requiring
an application to the court to approve contracting out agreements
was not an effective filter to prevent an abuse of what was generally
assumed to be the landlord's dominant position. The Law Commission
recommended an alternative procedure not involving application
to the court. The contracting out proposal contained in the order
originates in the Law Commission Report although the procedure
proposed is different. Under the order, the approval of the court
for agreements to exclude security of tenure would no longer be
required; a "health warning" procedure would apply instead.
5. At "first-stage" scrutiny of the
proposal, the Committee concluded that it was not satisfied, either
by reliable statistical evidence or the results of the consultation,
that the proposed order would not remove a necessary protection
for tenants. The ODPM responded to the Committee's concerns in
two ways: by commissioning research into failed applications to
contract out and by undertaking a further consultation about the
likely impact of the proposed new contracting out provisions.
6. The research is described both in letters
from the ODPM to the Committee dated 6 February and 26 June (see
the Annex to this Report) and in paragraphs 11 to 13 of the second
Statement. The aim of the research was "to provide a robust
estimate of the number and percentages of section 38 applications
that were not accepted or failed, and the reason for failures".
The consultation elicited responses from five organisations (out
of nine approached) whose members consisted of, or included, small
business occupiers about their views on the likely impact of the
proposed new contracting out provisions. The consultation is described
in the letter of 26 June (see Annex to this Report) and in paragraphs
14 and 15 of the second Statement.
7. We considered this additional evidence, along
with the reasoning set out in the accompanying letter, and concluded
that, in the light of the evidence concerning both the nature
and number of section 38 application refusals, we were satisfied
that the proposed warning provided as effective a protection for
tenants as that provided under the present arrangement involving
the court and that, therefore, no necessary protection was lost
under the contracting out provisions under the proposal. The ODPM
were informed of our view in a letter dated 14 July (also set
out in the Annex to this Report).
Regulatory Reform Committee of the House of Commons
8. In response to a recommendation by the Regulatory
Reform Committee of the House of Commons,
the ODPM has changed in minor respects the proposed procedure
for agreements to exclude security of tenure and agreements to
surrender. These changes are described in paragraphs 7 and 28
of the second Statement. Under the amended procedure, tenants
who have received at least 14 days' notice of a proposed agreement
to exclude security of tenure must also sign a simple, prescribed
declaration that he or she has received the required "health
warning" notice and has accepted the consequences of entering
into the agreement. A similar requirement also applies to tenants
who have received at least 14 days' notice of a proposed agreement
to surrender. The ODPM acknowledges that the amendments create
a new burden but takes the view that the burden is justified on
grounds of maintaining necessary protection for the tenant, and
that the other provisions of the 2001 Act relating to the creation
of new burdens are satisfied. We agree.
9. In its report, the Commons Committee also
referred to two "additional burdens" which the Committee
identified at "first-stage" scrutiny but which the ODPM
did not fully address in its original Statement accompanying the
proposal. These are mentioned at paragraph 26 of the second Statement
and fully explained in Annex F to that Statement.
10. In addition, the ODPM has made a number of
detailed changes to the draft order which it describes as "all
of a minor, tidying up nature" which "do not fundamentally
change any of the proposals". These changes are made mainly
as a result of representations received since "first-stage"
scrutiny and they are set out in paragraphs 31 to 44 of the second
Statement. They concern provisions relating to applications to
court by either the landlord or tenant for a new tenancy under
section 24 of the1954 Act (Article 3 of the draft order), applications
to court by the landlord to terminate a tenancy without renewal
and section 64 of the 1954 Act (Article 5) and transitional provisions
relating to existing leases which include reference to the section
38 procedure (Article 29). The ODPM suggests that the amendments
to Articles 3 and 5 could be construed as new burdens. We accept
the conclusion of the ODPM that if this is the case, then the
provisions satisfy the requirements of the 2001 Act.
11. In our first Report on this proposal,
we concluded that it was appropriate to be made under the Regulatory
Reform Act 2001 save in respect of those provisions relating to
"contracting out" (Articles 21 and 22 and Schedules
1 to 4). In the light of further evidence provided by the ODPM
concerning the nature and number of applications to contract out
which are refused by the court, we now conclude that the contracting
out provisions are appropriate for inclusion in the draft order.
We also conclude that amendments to the order which have been
made following "first-stage" scrutiny are also appropriate
for inclusion in the draft order. We therefore recommend that
the order, as it now stands, is in a form satisfactory to be submitted
to the House for affirmative resolution.
2 4th Report, HL Paper 22, Session 2002-03. Back
2nd Report, Session 2002-03, HC 182. Back