PHARMACY LAW: Rules around security of tenure for commercial tenants set to change

Nearly 70 years ago the UK Government recognized the imbalance of power between commercial landlords and tenants and passed the Landlord and Tenant Act 1954 (the Act), giving most commercial tenants a right of security of tenure.

What is security of tenure? 

The Act grants tenants of business premises (so this would include pharmacy tenants) the right when the fixed term of their lease has ended to remain in occupation of the premises and the right to apply for the grant of a new lease. The landlord can only object to the grant of the new lease of the premises to the tenant, and therefore regain possession of the property on certain grounds set out in the Act.

The parties to a lease can contract outside the provisions of the Act and where this is the case, a tenant would not have security of tenure. Most landlords will insist on no security of tenure where a lease is granted for a short term. As pharmacy leases have tended to be granted for longer terms (usually between 10 and 15 years) pharmacy tenants often have security of tenure.

The Act sets out strict procedures which need to be followed to both contract outside the provisions of security of tenure and also to exercise the security of tenure rights granted by the Act.

Pharmacists should take legal advice before agreeing to a pharmacy lease being excluded from the Act, and also at the end of their lease term whether or not they have security of tenure. If the lease is contracted outside of the Act, advice should be sought on agreeing new lease terms, if the pharmacist wishes to remain, as there will be no right to do so beyond the end of the lease term.

If the lease is protected by the security of tenure provisions of the Act, advice should still be sought, as the Act prescribes a formal notice procedure that both the landlord and tenant must adhere to, before a new lease can be granted.

Proposed changes to the Act

From time to time the Law Commission has reviewed the Act but its framework has remained largely untouched since it was brought into force.

We now live in a world that is almost unrecognisable from the one in which the Act was granted. The internet, Covid and sustainability are just a handful of the factors that have changed the way we live our lives and run our businesses. Offices and high streets are trying to adapt to our "new normal".

What was a helpful framework in the post-Second World War landscape is now seen as a drag on the ability of businesses to develop positively to today's market needs. The Act has been described in the modern day as overly complex and bureaucratic, consequently holding back businesses and the high streets and town centres they operate in.

Many landlords and tenants now want to be able to choose to utilise short-term occupational arrangements with increased flexibility. This has resulted in lease terms generally being much shorter today, with the parties opting out of the Act.

Although to date this has not been the case with pharmacy leases, contracting outside of the Act is becoming more prevalent. It therefore may be that pharmacy lease terms will also start to reduce in the future.

Given that generally landlords and tenants are demanding more flexibility, the Law Commission has announced a consultation to look at modernising the Act. The emphasis is on creating something fit for today's market and reflecting wider Government policies around "levelling up" and "net zero".

It has been suggested that the changes that are to be considered will go much further than tinkering around the edges of the Act, which is all that has happened to date. The last significant change to the Act was made twenty years ago when the Act was amended to replace the requirement for a court order to exclude security of tenure rights with a much simpler requirement for a declaration -- designed to reduce cost and delay.

It is expected that any new suggested changes to the Act would create a legal framework that would be widely used by the parties. This is as opposed to the current trend whereby the Act is being opted out of.

It is hoped that the Government's stated aim of keeping things clear and simple and making it beneficial to both landlords and tenants will be achievable but that remains to be seen. Any changes will affect pharmacy tenants and we will keep you appraised of them.  The review will be commissioned by the Department for Levelling Up, Housing and Communities and a consultation paper is expected by late 2023.

By Ben Butterworth

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns. If you require further information in relation to the points raised in this article you should contact Ben Butterworth or Michelle Noble who are both members of the Pharmacy Transactions Real Estate Team at Charles Russell Speechlys LLP. Michelle can be contacted on michelle.noble@crsblaw.com and Ben on ben.butterworth@crsblaw.com.