Fred Lee, senior counsel at Farrer & Co, examines how proposed legislative reforms can promote more sustainable tenanted buildings
As the new Labour government begins to introduce its legislative agenda on achieving net zero, and the Landlord & Tenant Act 1954 reaches its 70th anniversary, it is signalling that the UK’s legislative landscape surrounding sustainable buildings is heading towards a period of transition. The current laws governing the built environment and the tenanted property sector remain outdated and in need of reform.
The British Property Federation’s recommendations
In light of this requirement for transition, the British Property Federation and Savills recently released a significant research report, Closing the Data Deficit. The report, supported by Farrer & Co, addressed the barriers and solutions for achieving net zero standards in tenanted buildings.
Among its findings, the report found that “green lease” and net zero provisions are rarely included in renewal leases because the act does not recognise these within the meaning of “reasonable modernisation” as per the act and related case law.
As such, one key recommendation was to ensure the consultation process for updating the act considers the path and obstacles to achieving net zero in the built environment.
Currently, as shown by the 2023 Clipper Logistics case, the act prioritises tenant protection and security of tenure, with courts rarely including provisions which go beyond “reasonable modernisation” in renewal leases.
Given the gradual introduction of green lease provisions over the last decade, act-protected tenants can justifiably (in the eyes of the statute) resist such provisions during renewal. Landlords can only rely on tenant cooperation, as the current law stands – which may not be achievable in all cases.
Moreover, the act applies only to renewals of protected leases. It will be interesting to see if the consultation will also consider mandating green lease and net zero provisions for new leases, not just renewals, as these remain subject to open negotiations between the parties.
The Law Commission’s plans
As the act marks its 70th anniversary, it is evident that the law needs updating. However, the extent and fundamentals of these changes remain uncertain.
This milestone coincides with broader changes in the UK, where the new Labour government is outlining its legislative agenda on sustainability, including energy, the built environment and tenanted property sector.
The new government’s approach to addressing the sector’s sustainability challenges is still unfolding, but they are not starting from scratch. The Law Commission plans to begin a consultation process in Autumn 2024 to reform the act.
Recognising the act’s shortcomings, the commission acknowledges that legislation initially designed to support tenant businesses during postwar recovery may no longer be suitable. Many property owners and occupiers now aim to enhance their properties’ environmental credentials.
The commission has commented that reform is required because: “Since the act was last reviewed, the world around us has changed, and so has the commercial leasehold market. […] Government priorities have also evolved, with a heightened focus on the environmental sustainability of commercial properties.”
A key issue with the 70-year-old legislation is its lack of provisions allowing for the improvement of the energy performance of tenanted properties in renewal leases. Therefore, the implementation of an updated act would provide both clarity and development within the sector and would, therefore, be welcomed.
Grounds for redevelopment to deliver net zero in tenanted buildings
A further area for potential consultation is the grounds on which landlords can oppose renewals, particularly concerning redevelopment.
Currently, the act allows landlords to oppose lease renewals if they plan to demolish or reconstruct the property (Ground F).
However, this does not cover energy efficiency upgrades, preventing landlords from refusing lease renewals based on properties not meeting minimum EPC standards. Given the recent reforms to EPC standards, which now require a minimum energy efficiency standard from an E to a C, this is a pressing issue.
The Law Commission may consider expanding Ground F to include energy efficiency upgrades or granting courts the power to renew tenancies while allowing landlords access to carry out these upgrades.
Mandatory framework for net zero
Due to the topical and evolving nature of sustainability, reforming the act should be considered within the broader context of the net zero pathway, potentially extending to a mandatory framework for both renewal and new leases regarding green lease provisions to boost environmental performance and data sharing.
Whether the reform will bring comprehensive changes or be more incremental remains to be seen. The act was originally designed to protect tenants, so there may be resistance to changes perceived as favouring landlords.
However, it is evident that the Landlord & Tenant Act 1954 requires reform to ensure it is aligning with modern requirements.
More information on the Closing the Data Deficit report is available on the Farrer & Co website.
