Memorandum by the Office of the Deputy
Prime Minister |
6. This memorandum addresses the five questions
the Clerk to the House of Lords Select Committee on Delegated
Powers and Regulatory Reform raised in his letter of 18 October.
(1) Of the 54,000 applications each year (Annex
G, para 9), how many result in the court's approval of the agreement
to exclude security of tenure?
7. The Court Service does not maintain records
of how many applications are approved. However, they confirm that
the courts refuse a negligible proportion of applications, and
that these refusals are only where there has been a technical
defect in the application.
(2) What is the average number of business
leases concluded each year to which Part 2 of the Act applies
(inclusive of the 54,000)?
8. Specific information about the number of leases
subject to Part 2 of the Landlord and Tenant Act 1954 is not held,
nor can an estimate be derived from available data sources:
- Land Registry: at present, only leases of 21
years or over have to be registered. Most business leases are
now much shorter than this;
- The Valuation Office Agency maintains data for
business rates purposes. This shows that there are a total of
1.7m premises in England and Wales which are subject to business
rates. If leased, these would generally be subject to the Landlord
and Tenant Act 1954, but the Agency does not differentiate between
freehold and leasehold property. It is not possible to deduce
how many leases are concluded each year.
- The Stamp Office (Inland Revenue) has data for
leases which have been stamped for Stamp Duty. However, Stamp
Duty is not payable on leases where the annual rent is less than
£5,000 and the lease is for a period of less than seven years.
Where Stamp Duty is not payable, parties will often not have the
lease stamped, so this figure would not be a reliable guide to
the number of leases subject to Part 2 of the 1954 Act.
Our best guess of the number of annual lettings under
the 1954 Act (including those in which security of tenure has
been excluded) would be in the region of 60,000 to 100,000 per
- It is said (page 39 of the Statement) that
courts do not consider cases on their merits and are not required
to exercise any discretion. What does the Department consider
to be the function of the court in considering applications?
9. Section 5 of the Law of Property Act 1969
(amending Part 2 of the Landlord and Tenant Act 1954) established
the present role of the courts in considering applications to
approve agreements to exclude security of tenure. Its provisions
reflected Law Commission proposals that parties should be able
to make such agreements, provided the court had sanctioned them
in advance. The relevant extract from the 1969 Law Commission
Report is at Annex A.
10. Notes on Clauses for the Law of Property
Bill confirm that Ministers intended the courts to ensure that
agreements were genuine and that the parties understood their
"It will be the court's function on an application
under this clause to satisfy itself that the parties have reached
a genuine agreement for their mutual benefit and understand the
effect of that agreement. Subject to that, the court would have
no reason to withhold its sanction. The necessity to obtain such
sanction is thought to be a sufficient protection for the tenant
against the possibility of his being induced to sign away his
rights under Part II of the Act without good reason."
In debate in the House of Commons, the then Solicitor-General
the court's function under the Clause
is not to act as a rubber stamp, but to satisfy itself that the
parties have reached a genuine agreement for their mutual benefit
and that they understand its effect."
11. A Court of Appeal case in 2000
confirmed that the courts are still operating the law as had been
envisaged, holding that the court is neither empowered nor entitled
to consider the fairness of the bargain which the parties propose
to make. The Court of Appeal said that the purpose of section
38 is to enable a court to satisfy itself that the prospective
tenant understands that he or she is foregoing the protection
of the Act. In an earlier case
the court had said that the agreement concerned was "made
by business people, properly advised by their lawyers. The court
has no material on which to refuse [to grant the order]."
- What effect does the Department believe its
proposed new arrangements will have on the number of tenancies
concluded each year in respect of which security of tenure is
12. It is difficult to forecast what the impact
of this new provision is likely to be. This will partly depend
on developments in the commercial property market, including trends
towards shorter leases and more flexibility. There have been signs
of more contracting out in recent years, particularly in shopping
centres, and the new provisions may reinforce these trends. However,
we would expect that parties to business leases would be more
likely to consider the nature of the business and the contract
rather than the regime for excluding security of tenure when deciding
whether or not security of tenure should apply.
13. On the other hand, there is some incentive
for landlords to grant security of tenure, as such leases are
likely to command higher rents than those where security of tenure
has been excluded. The Department hopes that the proposed new
"health warning" provisions would encourage tenants
to consider carefully what arrangement would be in their best
interests, and in particular to obtain appropriate professional
advice before agreeing to exclude security of tenure.
- Annex E to the Statement (para 109) does not
specify whether the introduction of new procedures for excluding
security of tenure would remove any necessary protection for tenants.
What protection does the Department consider is provided by the
14. We regret that there was an error in Annex
E, which should have reflected the equivalent entry in Annex A
to the consultation paper, which read as follows:
"The proposals would remove the need for the
parties to seek prior court approval for agreements to exclude
security of tenure, but the notice provisions would maintain protection
for the tenant by drawing attention to a "health warning"
explaining the consequences of agreeing to exclude security of
15. At present, the courts confirm that the parties
have validly agreed to exclude security of tenure. The form used
confirms that the parties and their solicitors have consented
to the proposed exclusion order. The courts therefore provide
a modest degree of protection. It should however be noted that
the involvement of solicitors in the preparation of the order
does not necessarily imply that tenants have obtained substantive
24 October 2002
6 Hansard, HC Deb (1968-69), col 500 Back
Receiver of Metropolitan Police v Palacegate Properties 
3 WLR 519 CA Back
Hagee (London) v Erikson (A.B.) and Larson  Q.B. 209 Back