1954 Act Consultation – Expanding the threshold and periodic tenancies

Following the first consultation, some respondents called for the threshold for excluding short-fixed term tenancies to be increased. 

The Law Commission has taken several factors into account, including:

• Whether short-term tenants need or expect security of tenure. Flexibility is likely to matter more than security for most tenants.
• The need for a flexible short-term lettings market. Shorter leases may be cheaper, broaden the tenant mix and give landlords confidence that they can regain possession when needed.
• The level of tenant investment. Short-term tenants may invest less in fit-out, so may not desire any protection.
• Whether a higher duration threshold would reduce the need to contract out, given concerns that the current process is complex and burdensome. We will explore contracting out in a later article.

In light of the responses to the first consultation, the Law Commission’s provisional view is that extending the threshold to  1- or 2-years would best balance landlord and tenant interests. This would support flexibility in the short-term letting market while preserving default protection for most leases. Any longer extension could distort market behaviour and weaken the contracting out model, catching tenants who want security. 

Periodic tenancies, whether express and implied, are within the scope of the 1954 Act and cannot be contracted out. This limits flexibility where the parties want a periodic tenancy without security of tenure. 

The current position is arguably inconsistent. A periodic tenancy may be very short, whether weekly or monthly, but it is still protected. By contrast, a fixed-term tenancy of 6 months or less, or a tenancy at will arising in similar circumstances, is not protected.

The Law Commission identifies three possible reforms:

• Exclude all periodic tenancies from the 1954 Act. This would create a clear and simple rule that new periodic tenants would not have security of tenure. Tenants who want protection could still take a fixed-term tenancy of sufficient length. The main drawback is reduced tenant protection.
• Exclude only some periodic tenancies, for example where the tenant has occupied for less than 1 or 2 years (to be consistent with the proposal for fixed term tenancies). The Law Commission does not favour this because it could create uncertainty, factual disputes and litigation about when protection arises.
• Allow periodic tenancies to be contracted out. This would preserve default protection while allowing parties to opt out, as with fixed-term tenancies. However, it would mainly help with express written periodic tenancies and would not address implied or oral periodic tenancies.

The Law Commission’s provisional view is all periodic tenancies granted to new tenants (both express and implied) should be excluded from the scope of the 1954 Act. This would more closely align the legal position with the parties’ likely expectations as to whether a particular tenancy is protected. If express written periodic tenancies continue to be within the scope of the 1954 Act, it is provisionally proposed that parties should be able to contract out. 

Fixed-term and periodic tenancies granted to protected tenants 

This proposal applies where a fixed-term tenancy or express periodic tenancy is granted to a tenant who already has a protected tenancy.

If the chaining provision were abolished, and periodic tenancies granted to existing tenants or occupiers were also excluded from the 1954 Act, landlords could grant a short fixed-term or periodic tenancy to an existing protected tenant and turn it into an unprotected tenancy. The original protected tenancy would likely be treated as surrendered when the new unprotected tenancy is granted. This could disadvantage less well-informed tenants who do not realise the consequences of taking an unprotected tenancy. 

The Law Commission provisionally proposes:

• Any fixed-term tenancy, or express periodic tenancy (whether written or oral), granted to an existing protected tenant should be within the scope of the 1954 Act.
• For any such fixed-term or express written periodic tenancy that is within the scope of the 1954, it should be possible for the parties to contract out 

Fixed term tenancies granted to unprotected tenants or occupiers 

The chaining provision described above gives rise to various problems, and some consultees suggested that it should be abolished. Parties may want the flexibility of granting a series of short tenancies without acquiring security of tenure. The current position can create uncertainty, because protection depends on what happened before the tenancy began. This can become a trap where the parties did not know, or did not intend, that protection would arise.

The Law Commission questions whether a fixed term tenancy which is below the duration threshold (which the Law Commission proposes being set at 1 or 2 years) should be within the scope if the tenant has already been in occupation for some time. 

The Law Commission proposes, if the chaining provision is retained: 

• Its trigger point should match the duration threshold (provisionally proposed to be 1 or 2 years).
• It should be triggered if the tenant will have been in occupation for the specified period by the expiry of the tenancy, rather than at the commencement of the tenancy.
• Only occupation by the tenant should be taken into account, and occupation by the tenant’s predecessor should not be considered.

Periodic tenancies granted to unprotected tenants or existing occupiers 

Under the current law, all periodic tenancies are automatically protected. The Law Commission asks whether periodic tenancies granted to existing unprotected tenants should be excluded from the scope of the 1954 Act.

Express periodic - The Law Commission’s provisional view is that express periodic tenancies granted to existing unprotected occupiers should not fall within the scope of the 1954 Act. Periodic tenancies are flexible and involve minimal commitment by both parties. An existing unprotected occupier taking a periodic tenancy should not expect security any more than a new periodic tenant.

Implied periodic - The Law Commission is concerned that tenants may gain protection unexpectedly, unfairly or at times where they may not want it. The provisional view is that all implied periodic tenancies granted to existing unprotected tenants and occupiers should be excluded from the scope of the 1954 Act. The situations in which implied periodic tenancies arise (for example, on expiry of a fixed term tenancy where no action is taken to regularise the occupation) are not usually ones where the parties can reasonably expect security of tenure, and they create a trap for the unwary.