§ Mrs. BrowningTo ask the Secretary of State for the Environment if he will make a statement on the conclusions he has reached on(a) the issues discussed in the consultation paper issued by his Department on 27 May 1993 on commercial property leases and (b) the recommendations of the Law Commission in its reports 208, "Landlord and Tenant—Business Tenancies: a Periodic Review of the Landlord and Tenant Act 1954 Part II" and 178, "Landlord and Tenant Law—Compensation for Tenants' Improvements"; and if he will make a statement.
§ Mr. BaldryConsultation paper on commercial property leases.
The consultation paper discussed whether the Government should take any action over three aspects of commercial leasing practices which had aroused concern: upward only rent reviews, confidentiality clauses and dispute resolution procedures. We issued the consultation paper in response to concern about apparent rigidities in the market and the difficulties a number of commercial tenants were facing with their leases.
It is evident that the market is now providing a greater variety of lease terms. We welcome signs that this is taking place, especially the availability of shorter leases. It is important for the industry to be flexible if it is to meet changes in the market. While the relative bargaining strengths of the parties will depend on the state of the market, it is not clear that occupiers fully appreciate the strength of their own bargaining positions. We consider the best way forward would be for the industry to adopt a code of practice which not only draws attention to the implications of upward rent review clauses but encourages flexibility on other terms. On the assumption that a satisfactory code of practice can be developed and accepted by all sectors of the property industry in consultation with occupiers' representatives and put into effect, we consider that statutory intervention to regulate rent review clauses would not be appropriate.
We favour maximum transparency in the marketplace. We recognise that despite this, confidentiality clauses in leases sometimes reflect the specific and legitimate needs of the landlord and tenant. A ban would be insensitive to these needs. Nevertheless, it would be to the advantage of interested parties if in general greater openness could be achieved, as this should improve the quality of information on which decisions are based. We envisage that the code of practice should encourage greater openness, unless there are compelling reasons to the contrary. We shall consult with interested parties on how this could be achieved.
On resolution of disputes, it is no part of the Government role to regulate the procedures to be followed. The main emphasis must rest on the parties remaining free 112W to agree dispute resolution procedures of their own choice. There is, however, scope for better understanding, especially among tenants, of the procedures available and while, in general, existing procedures work satisfactorily, there is a continuing need to be vigilant about the scope for improvement. We therefore look to discussions about a code of practice to stimulate greater awareness of current procedures. More generally the competitiveness White Paper refers to other work being taken forward to simplify the law on arbitration and encouraging other forms of dispute resolution. We also intend to review with interested organisations options for providing a quick, cheap and cost-effective method of resolving disputes for small tenants.
In conclusion, the Government will work with representatives of both landlords and tenants and other interested parties with the aim of producing a code of practice within the next twelve months. The Government will appraise the operation of the code after three years when it should have had reasonable time to influence commercial practices. In particular, we will review the impact on the flexibility and transparency of the market.
Law Commission report on landlord and tenant law
Law Commission report No. 208 dealt with the workings of part II of the Landlord and Tenant Act 1954, and was concerned primarily with technical issues. It has made a number of useful recommendations about the better workings of the Act—for example, streamlining the procedures for serving notices when a tenancy comes to an end. We propose to implement most of these.
However, some of the issues raised have wider implications for relationships between commercial landlords and tenants. In particular, we wish to give further consideration to the proposal to make it easier for landlords and tenants to contract out of the provisions of the 1954 Act; we will want to satisfy ourselves that this proposal will not jeopardise the position of tenants.
We shall be taking a further look at these wider issues in conjunction with advice provided by my Department's property advisory group.
Law Commission report No. 178 recommended the abolition of the statutory scheme for compensating tenants for improvements that they carry out. We accept the Commission's proposals. This scheme is little used. The procedures are complicated and time-consuming, and the provisions of the 1954 Act have rendered it largely obsolete. The 1954 Act gives tenants the right to lease renewal, except in defined circumstances; and the rent on renewal does not take account of improvements carried out by the tenant.
The 1927 Act also enables tenants to obtain court approval for carrying out improvements which would otherwise be unlawful. We accept the Law Commission's recommendation that this should remain.
We will need primary legislation to implement proposals stemming from these two reports.
I should emphasise that we have no intention of abolishing the 1954 Act, which has stood the test of time and provides a careful balance between the interests of landlords and tenants. In particular, we are not considering removing security of tenure for business tenants.
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