By the Select Committee appointed to report whether
the provisions of any bill inappropriately delegate legislative
power, or whether they subject the exercise of legislative power
to an inappropriate degree of parliamentary scrutiny; to report
on documents and draft orders laid before Parliament under the
Regulatory Reform Act 2001; and to perform, in respect of such
documents and orders and subordinate provisions orders laid under
that Act, the functions performed in respect of other instruments
by the Joint Committee on Statutory Instruments.
1. The proposals relate to the leasing of commercial
premises in England and Wales, currently governed by Part II of
the Landlord and Tenant Act 1954. The 1954 Act gives tenants the
right to remain in their premises when their tenancy ends and
to seek a new tenancy based on the current open market rent. Landlords
can oppose renewal on a number of specified grounds; some of these
involve the tenant being at fault (e.g. failure to pay rent),
but some do not (e.g. the landlord intends to redevelop the premises).
The background is more fully explained on pages 2 and 3 (paragraphs
4 to 7) of the Department's Statement laid under section 6 of
the Regulatory Reform Act 2001 ("the 2001 Act"). Attached
as Annex 1 to this Report is the correspondence between this Committee
and the Office of the Deputy Prime Minister. Annex 2 contains
the transcript of evidence of officials of the Office of the Deputy
Prime Minister. We thank them for the assistance they gave us.
2. The proposals are intended to maintain the
principle of the 1954 Act whereby a balance is struck between
the rights of the landlord and those of the tenant. There are,
broadly, a number of related reforms presented as a package:
(a) Approval of the court to agreements to exclude
security of tenure would no longer be required. Instead, the landlord
would normally be required to draw the consequences of such an
agreement to the tenant's attention at least 14 days in advance
("health warning" procedure) (Articles 21 and 22 of
the draft Order).
(b) Approval of the court to agreements to surrender
a tenancy at some time in the future would similarly no longer
be required. Instead a health warning procedure would apply (Articles
21 and 22).
(c) It would be made clear that a tenant who
vacates the premises before the end of the contractual term, or
who gives 3 months notice before that date to end the tenancy,
has no continuing obligations after that date (Article 25).
(d) The requirements on landlords and tenants
to give each other information to operate the relevant statutory
procedures would be extended, in particular so as to require a
six-month updating (Articles 23 and 24).
(e) A landlord not opposing the grant of a new
tenancy would be required to set out proposals for the terms of
a new tenancy when terminating the old one (Article 4).
(f) The procedure for terminating and renewing
tenancies would be changed to remove current requirements for
notices and counter-notices to be served to specific deadlines,
the missing of any of which can prove costly for a tenant (Articles
4 and 5).
(g) The landlord, as well as the tenant, would
be permitted to apply to the court for renewal of a tenancy, to
avoid delay by the tenant (Articles 3 and 4).
(h) Provisions for treating related business
entities (whether landlords or tenants) as the same person would
be extended to reflect commercial reality (Articles 13 to 17).
(i) Adjustments would be made to the provisions
whereby an interim rent is payable by the tenant, after the end
of the old tenancy, pending renewal. Tenants (instead of only
landlords) would be able to apply to the court for an interim
rent to be fixed; and the method by which it is calculated would
be altered (Article 18).
(j) The circumstances in which a tenant may claim
compensation from a landlord for misrepresentation would be extended
to cover cases where the misrepresentation induces the tenant
not to apply to the court for a new tenancy or to withdraw an
application which he has made. (Currently the tenant can claim
only where the misrepresentation induces the court to refuse a
new tenancy) (Article 20).
(k) The three months' notice given by a tenant
to end the tenancy under which he continues to occupy the premises
after the end of the old tenancy (a "holding over" tenancy)
would no longer have to expire on one of the traditional quarter
days (Article 25).
(l) The courts would be able to grant new tenancies
for up to 15 years, rather than 14 years at present (Article 26).
(m) The procedure for renewal etc. would be operable
where there was a single lease but more than one landlord (Article
3. Each of the proposals is discussed at pages
3 to 6 of the Department's Statement and at Annex A to the Statement,
where a commentary is given on each Article of the draft Order.
Items (a) and (f) to (i) above are perhaps the most significant.
4. Not each of the proposals removes or reduces
a burden, but the 2001 Act does not require this. It requires
that the order must include at least one provision which removes
or reduces a burden (section 1(3)). The Committee accepts that
the following burdens, in particular, would be removed or reduced
by the proposed Order:
- The burden on landlords and tenants to seek a
court order endorsing their agreement to exclude the security
of tenure provisions or endorsing an agreement to surrender a
- The burden on a tenant to serve a counter-notice
or else lose the right to renew.
- The burden on a tenant to give more than three
months' notice to end a "holding over" tenancy, where
the three months' would not expire on a quarter day.
- The burden on a tenant to make an application
to the court only within strict time limits.
5. The proposed Order would also re-enact some
existing burdens and remove inconsistencies and anomalies.
6. The proposals have their origins in papers
prepared by the Law Commission in 1988 and 1992. The Department
conducted two consultation exercises - in 1996 and 2001. Although
the 2001 consultation began before the 2001 Act came into force,
section 5(4) of that Act enables it to count for the purposes
of the proposed Order. Those consulted included the Law Commission
and the National Assembly for Wales. A summary of the responses,
with the Department's conclusions, is at Annex B1 to the Department's
Statement. (The list of those responding is on pages 97 to 99).
The Department has modified its proposals in the light of the
consultation (see, e.g., page 72 of the Statement).
7. The package of reforms has been generally
welcomed, but views have been expressed on the merits of particular
proposals. There is no indication that the proposals have attracted
a level of controversy which would make the 2001 Act procedure
inappropriate. Subject to one reservation (paragraph 25 below),
the Committee accepts that there has been adequate consultation.
8. Only two of the proposals seem to involve
serious questions as to whether any necessary protection is being
lost - those relating to court approval for agreements excluding
security of tenure and renewal procedure.
9. The existing requirement for court approval
of agreements for excluding security of tenure and agreements
to surrender tenancies is intended to protect the tenant from
unscrupulous landlords who might otherwise dupe the tenant into
signing away his rights. The Department believes that, in practice,
courts "rubber stamp" many arrangements. The alternative
"health warning" arrangements are intended to provide
at least as effective an alternative more quickly and at lower
cost. But the Committee has serious reservations about this aspect
of the proposals. These are discussed at paragraphs 15 to 25 below.
10. The requirement that a tenant receiving a
landlord's notice to terminate the tenancy must serve a counter-notice
within strict time limits is intended to protect the landlord
from being in a position of uncertainty, not knowing whether he
can arrange to let the premises to someone else. The proposals
address this issue by giving the landlord the right to apply to
the court to renew the tenancy, thus bringing matters to a head.
If one of the grounds for terminating the tenancy applies, the
landlord may always apply himself for termination (new section
29(2)). The Committee feels that, in these circumstances, the
position of the landlord is adequately protected.
11. The intention of the 1954 Act is to restrict
the freedom of landlords to regain possession of business premises
at the end of a tenancy. We see nothing in the proposals which
would prevent people from exercising a freedom which they might
reasonably expect to continue to exercise.
12. The proposed Order would create some new
burdens. These are largely
as substitutes for other burdens being removed. The increased
requirement on landlords and tenants to give information is to
further the functioning of the new and the existing procedures.
These burdens satisfy the tests of fair balance and proportionality.
13. The proposed order designates Schedules 1
to 4 of the order as subordinate provisions and provides that
they may be amended by a statutory instrument subject to the negative
resolution procedure. Schedules 1 to 4 prescribe forms of notice
and the requirements for a valid agreement to exclude security
of tenure or to surrender a tenancy. We conclude that this would
be an appropriate use of the subordinate provisions procedure
were these Schedules to be included in the Order. Application
of the negative resolution procedure would be in line with similar
provisions of the 1954 Act about prescribing forms.
14. Although these are important proposals, affecting
a large number of people, we conclude that the proposed Order
is, subject to one exception, an appropriate use of the powers
under the 2001 Act and meets the requirements of the Act.
15. The Committee is not persuaded that a sufficient
case has been made for the inclusion of the proposed provisions
on agreements to exclude security of tenure ("contracting
out"). Since similar considerations apply to the proposed
provisions on agreements to surrender a tenancy at some time in
the future, the Committee is not persuaded that a sufficient case
has been made for those provisions either.
The 1954 Act as originally enacted
16. The 1954 Act originally contained no provision
allowing landlords or tenants to agree that the security afforded
to tenants by the 1954 Act should not apply. That security was
a fundamental concept of the Act.
The Law of Property Act 1969
17. Section 5 of the Law of Property Act 1969,
implementing a Report of the Law Commission, allowed landlords
and tenants to agree to exclude the provisions of sections 24
to 28 of the 1954 Act (the security of tenure provisions), but
only if the court authorised it. It appears to have been the intention
that the court should ensure that the consent of the parties was
genuine and freely given, and that the Housing Act 1961 was taken
as the model. Though it may have been envisaged that the court
may wish to check that the terms of the agreement were prima facie
in the interests of both landlord and tenant,
the court of Appeal has since held (Metropolitan Police Commissioner
v. Palacegate  3WLR 519) that the court is neither empowered
nor entitled to consider the fairness of the bargain.
Law Commission Report 1992
18. The Law Commission concluded in 1992 that
applications to the court to approve agreements excluding the
security of tenure provisions were 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 applications to the court. One of the
difficulties mentioned by the Law Commission was the lack of information
as to why about 15% (at that time) of applications to the court
were rejected. The Law Commission considered that allowing unrestricted
contracting out would fundamentally undermine the statutory scheme
and that there had to be a constraint to ensure that the prospective
tenant only agreed to contract out if he understood the nature
of the statutory rights which he was agreeing to forego. The Department's
proposal has its origins in this Report of the Law Commission
though the procedure proposed is different.
The Committee's Views
19. The evidence does not indicate that the 1969
Act has altered the original principles of the 1954 Act to an
extent that renders the protection afforded to tenants illusory.
The Committee considers that if there is any doubt that the Department's
proposals might lead to a de facto removal of the security of
tenure protection the correct course of action is to proceed by
a Bill rather than an order under the 2001 Act. Accordingly, the
Committee would need to be satisfied that the proposal, in achieving
its aim of removing burdens for those wishing to contract out,
would not have the additional consequence of increasing the number
of "contracted out" cases to an extent that undermined
the protection afforded by the 1954 Act. It would also need to
be satisfied that the involvement of the court under the existing
procedure was as ineffective as is alleged in protecting tenants'
20. Despite the Department's best efforts and
some anecdotal evidence, there appears to be no reliable statistical
evidence as to the number of tenancies currently contracted out
each year, although for 1985 the figure of 10,300 was quoted to
us, and for 2001 we were told that some 52,000 applications were
made to the Court for approval of agreements under section 38(4)
of the 1954 Act. This latter figure however includes agreements
to surrender as well as agreements to exclude security of tenure.
There also appears to be no reliable evidence as to the proportion
of contracted out tenancies in relation to the total number of
tenancies to which Part II of the 1954 Act applies.
21. We heard that in 1989 some 21% of applications
to contract out of security of tenure were rejected by the Court.
The Department accepted that they had no evidence to indicate
that this figure has materially changed. If that be so, then it
would appear probable that in several thousand cases a year the
Court has declined to give its approval to an agreement between
landlord and tenant to contract out of the tenant's statutory
right to security of tenure.
22. Nor can the Committee be sure of the reasons
for rejection by the Court. We note that in a Government consultation
paper on reform of business tenancies legislation, published in
March 2001, it is stated that the Court might reject an application
either because it is technically deficient or there is some doubt
that one of the parties has understood its rights. Furthermore,
there is inadequate data about whether rejected cases are subsequently
23. Without reliable information on these issues,
it is difficult to gauge the precise extent to which the involvement
of a third party (the Court), inhibits the possibility of contracting
out becoming routine in all cases, and so inhibits the potential
abuse of the landlord's position which it was the intention of
the 1954 Act to prevent.
24. The Committee has looked to the results of
the consultation to see whether, nevertheless, there is a general
consensus that the proposals will not have that effect. Those
consulted, whilst asked to address the criteria in the 2001 Act,
were not asked specifically whether they felt that the proposed
procedure would lead to a significant increase in contracting
out or possible abuse of a landlord's position where it was dominant.
(Whether the landlord's position is in fact dominant and, if it
is, the extent of the dominance, will depend on market conditions.)
Respondents who did mention this issue seem to have shared the
Committee's concerns even where, on balance, they approved the
proposal. So the Committee feels unable to assume that tenants'
representative groups, in particular, share the Department's view
that the security of tenure provisions of the 1954 Act will not
be undermined by the proposed change.
25. In view of these uncertainties, the
Committee doubts that this aspect of the proposal is suitable
for an order under the 2001 Act. In terms of that Act, the Committee
is not satisfied, either by reliable statistical evidence or the
results of the consultation, that the Order would not remove a
necessary protection for tenants.
26. The Committee recommends that Articles
21 and 22 of, and Schedules 1 to 4 to, the proposed Order should
be omitted, and any consequential changes (such as omitting Article
28(3) to (8)) should be made.
27. In all other respects, the proposals
are satisfactory and, in the Committee's view, meet the requirements
of the 2001 Act.
1 This report is also published on the Internet at
the House of Lords Select Committee Home Page (http://www.parliament.uk),
where further information about the work of the Committee is also
Details are in Annexes F3 and F4 of the Department's Statement,
which can be found at http://www.cabinet-office.gov.uk/regulation/act/proposals.htm. Back
Department's Statement, Annex F7. Back
Department's Statement, Annex F3. Back
HL Deb [24 April 1969] (Session 1968-69) col 562. Back