As of June, it will no longer be necessary to apply to a court for an order to exclude leases from the security of tenure provisions of the Landlord and Tenant Act 1954. Such an order authorises (following agreement between the parties) that any rights of security of tenure which would otherwise have been gained by the tenant will not apply to the lease in question.

An estimated 50,000 such applications are made each year and the requirement to obtain a court order is time-consuming and expensive, particularly in the context of short, repetitive lettings. In recent months, courts have stopped granting orders ‘over the counter’, thus contributing to the delay in completion of leases. Often this forces the parties to enter into an agreement for lease conditional upon the formality of obtaining the necessary court order, just to enable the tenant into early possession.

The Law Commission reported, as far back as 1992, that, whilst an exclusion agreement should still be included or endorsed on the lease, the need to obtain a court order should be dispensed with, as the existing procedure does not require the courts to exercise their discretion. The granting of the order has therefore become almost automatic and effectively a ‘rubberstamping’ exercise.

The new procedure will instead require a notice in a prescribed form to be given to the tenant by the landlord. This will contain a ‘health warning’ advising the tenant not to commit itself without obtaining professional advice, and summarising the legal rights it will be giving up. Following service of this notice, at least 14 days must elapse before the tenant can become contractually bound to enter into the lease and the tenant (or an authorised person) must then sign a simple declaration confirming receipt of the notice. To avoid the requirement to wait 14 days for the lease to complete following service of the notice, it is possible for the tenant (or an authorised person) to make a statutory declaration in a prescribed form (in the presence of a solicitor) stating that it understands the implications of its actions. Reference must be made in the lease to the notice and to the statutory declaration, as is the case now with leases recording the date of the court order.

Agreements to surrender leases that have the protection of security of tenure will also no longer have to be authorised by a court order. The new legislation prescribes a similar procedure of ‘health warnings’, 14-day notices and statutory declarations.

None of the changes will be retrospective and there are many leases in existence that contain covenants making provision for subletting which refer specifically to the current procedures. To deal with this, the new legislation provides that references to these procedures will be construed as referring to the new procedures. For contracts granting a lease that is conditional upon a court order being obtained, the existing procedure of the court application will remain.

The new regime for excluding security of tenure is perhaps one of the most immediately apparent practical changes to result from reform to the legislation. However, the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, which effects the reform of the existing legislation, also brings change to other familiar procedures relating to security of tenure for business tenancies.

Landlord's section 25 notices

If a landlord’s section 25 notice does not oppose the grant of a new tenancy, then from 1 June the notice will need to contain proposed new terms of the lease. There will be a ‘health warning’ on the notice informing the tenant that the proposals are not binding. There will no longer be a requirement for a tenant’s counternotice.

Applications to court

Currently, only the tenant may apply to the court for an order for the grant of a new tenancy. Under the new regime, either party will be entitled to apply to court for a new tenancy, and in the case of the landlord, for an order terminating the current lease without renewal. In addition, the current two-month window for a court application, which begins two months after the service of the landlord’s section 25 notice or the tenant’s section 26 request, will be replaced by a period ending with the expiry of the section 25 notice or the date before that specified on the section 26 request. Further extensions of this period will be possible by agreement between the parties.

Interim rent

Currently only the landlord may apply for interim rent, but the new regime recognises the reality of falling markets and so both landlords and tenants will be able to apply for an interim rent during the continuation tenancy. In addition, there will be a changed method of valuation where renewal is unopposed by the landlord, resulting in a valuation closer to the open market rental value.

Vacation of premises by tenant

Some controversy about the interpretation of the legislation was generated by Esselte AB v Pearl Assurance Plc [1997]. This case held that where a tenant ceases to occupy premises for the purpose of business prior to the end of the term, then the security of tenure legislation ceases to apply. Accordingly, the tenant can simply vacate without service of a section 27 notice. The reforms give statutory effect to this case.

Case reference

Esselte AB v Pearl Assurance Plc [1997] 1 WLR 891

Anna Foster is an associate in the real estate department at Osborne Clarke.

Reference point

For more on Esselte AB v Pearl Assurance Plc, see John Martin’s article ‘Statutory notices revised’, PLJ123

Anna Foster is an associate in the real estate department at Osborne Clarke.  © Property Law Journal