Law Commission consultation on business tenancies: modernising security of tenure

We invite the views of consultees as to whether the rent under a renewal tenancy should, or should not, include the equivalent of a rent-free fit-out period that would be given to a hypothetical new tenant of the premises in the open market.

If the 1954 Act is reformed to permit the tenant on renewal to obtain the equivalent of a rent-free fit-out period, we invite the views of consultees as to how that objective should be achieved.

If the 1954 Act is reformed to prevent the tenant on renewal obtaining the equivalent of a rent-free fit-out period, we invite the views of consultees as to how that objective should be achieved, in particular whether an additional valuation assumption should be introduced, and if so what that assumption should be.

Where the original tenancy includes a turnover rental model, we provisionally propose that the court should be capable of ordering the model be carried forward into the renewal tenancy. Do consultees agree?

Please explain why.

We invite the views of consultees as to whether the court should be capable of ordering that the rental model in the renewal tenancy shall be different from the rental model in the original tenancy (by changing from a rack rent to a turnover rent, or vice versa).

If the court is empowered to order a turnover rent in a renewal tenancy, we provisionally propose that the court should decide on the rental model:

1. based on what model a hypothetical landlord and tenant would agree for a renewal tenancy, where the tenant is operating the same business as the sitting tenant; and
2. having regard to any potential detriment to one or other party from a change of model and any consequential changes to the “linked other terms”.

Do consultees agree?

Please explain why.

If the rental model in a renewal tenancy changes from the model under the original tenancy, we invite the views of consultees as to how the court should decide disputes about the introduction or removal of “bespoke turnover provisions”, and consequential changes to “linked other terms”.

In particular, should the court decide disputes by considering what “other terms” are agreed in the current open market for tenancies which adopt that rental model?

When a turnover rent model has been agreed or determined, we invite the views of consultees as to how the court should determine (a) the base rent, (b) the turnover percentage, and (c) the turnover threshold (which collectively we refer to as the “turnover components”).

In particular, can the valuation assumptions and disregards be changed so that the sitting tenant’s actual business model (and potentially the sitting tenant’s actual turnover) are taken into account, but the sitting tenant’s goodwill and existing occupation of the premises are disregarded?

If the 1954 Act is reformed pursuant to Consultation Questions 21 to 23 above to cater better for turnover rents, we invite the views of consultees as to whether those reforms should apply equally to any rental model.

We provisionally propose that the Secretary of State be given a power to make regulations in respect of renewal tenancies which contain alternative rental models, to provide for different valuation assumptions and identifying “other terms”. Do consultees agree?

Please explain why.

We provisionally propose that the commencement date of the renewal tenancy, and interim rent provisions, be reformed as follows. Either:

1. the valuation and commencement date for the renewal tenancy would be fixed at a date that is specifically linked to the section 25 or 26 notice (on which, see Consultation Question 28 below), largely removing the need for interim rent provisions (“Option A”); or 
2. the existing valuation and commencement date of the renewal tenancy would be retained, and the existing interim rent provisions would be retained but simplified by setting out one basis of assessment (“Option B”). 

We invite consultees to tell us which option they prefer and the reasons for their choice.

If consultees do not agree with either Option A or Option B, we invite consultees to explain what reforms to the renewal tenancy commencement date and the interim rent provisions they would prefer (if any) and their reasons.

Please explain why.

Under Option A, we invite the views of consultees as to whether the valuation date should be (a) the 6-month-expiry-date, or (b) the expiry date specified in the section 25 or 26 notice.

Please explain why.

Under Option A, where the demise and/or the “other terms” of the renewal tenancy are different from the continuation tenancy, giving rise to a significant difference in the level of rent, we provisionally propose that the rent payable during the continuation period should be adjusted accordingly. Do consultees agree?

Please explain why.

Under Option A, where a renewal tenancy is not executed, we provisionally propose that the interim rent should be assessed as the open market rent for a hypothetical tenancy with the same provisions as the continuation tenancy. Do consultees agree?

Please explain why.

We invite the views of consultees as to whether the assumed duration of that hypothetical tenancy should be: 

1. the actual duration of the continuation tenancy; 
2. the duration that would have been granted had a renewal claim completed; or
3. a yearly tenancy, on the assumption that the premises are already fitted out. 

Under Option B, we provisionally propose that the interim rent should be assessed as the open market rent for a hypothetical tenancy with the same provisions as the continuation tenancy. Do consultees agree?

Please explain why.

We invite the views of consultees as to whether the assumed duration of that hypothetical tenancy should be: 

1. the actual duration of the continuation tenancy; 
2. the duration of the tenancy that was granted or, if no renewal tenancy was in fact granted, the duration of the tenancy that would have been granted had a renewal claim completed; or 
3. a yearly tenancy, on the assumption that the premises are already fitted out. 

In cases where the rental model is changing in the renewal tenancy, we provisionally propose that: 

1. under Option A, the court should be able to make an appropriate adjustment to the provisions of the renewal tenancy to facilitate the transition to a new rental model if backdating the new rental model would otherwise cause practical difficulties; and 
2. under Option B, the assessment of interim rent should always be based on the same rental model as the original tenancy. 

Do consultees agree?

Please explain why.

In cases where no renewal tenancy is executed, under both Options A and B, we provisionally propose that the assessment of interim rent should always be based on the same rental model as the original tenancy. Do consultees agree?

Please explain why.

We invite the views of consultees as to whether a procedure should be created allowing the parties to apply for an interim adjustment of the rent, pending the agreement or determination of the renewal rent and interim rent.

If consultees consider that such a procedure should be created, we invite: 

1. evidence as to the negative impacts of the current absence of such a procedure; and 
2. views as to how the practical difficulties of creating such a procedure can be overcome. 

We invite the views of consultees as to whether balancing payments in respect of interim rent should be recoverable as standard judgment debts, or whether such payments should instead be enforceable (by the landlord, the tenant, or both) as if they amounted to rent payable under the terms of the tenancy.