Deep dive: 1954 Act consultation - Section 28 (Question 17): Agreements for future renewal tenancies

Section 28 addresses a particular situation: where a landlord and tenant under a protected business tenancy agree in writing that the tenant will be granted a future tenancy of the holding, or the holding and other land.

In broad terms, where section 28 applies, the tenant's existing tenancy ceases to have the benefit of security of tenure under the 1954 Act. The effect is that the current tenancy will come to an end on the date specified for the new tenancy to begin, without statutory continuation. 

This makes section 28 unusual. Rather than operating through the better-known mechanisms of opposed or unopposed renewal, or through the contracting-out process, it gives legal effect to a written agreement for a future tenancy in a way that effectively displaces the existing protected tenancy. 

At first sight, section 28 may appear to be a useful facilitative provision. If landlord and tenant have already agreed that a new tenancy will be granted on a future date, there is an obvious commercial logic in allowing that agreement to take effect without requiring the full machinery of the Act to continue operating until the moment the new tenancy is completed. 

However, section 28 also sits somewhat awkwardly with the rest of the statutory framework where there is a contracting out process or, once granted, the landlord must have a ground to oppose to end the tenancy. Section 28 cuts across that structure. A written agreement for a future tenancy can, if it falls within the section, bring the protected status of the existing tenancy to an end without any separate validation process and without any judicial scrutiny. 

One of the main issues exposed by the consultation is that section 28 does not sit neatly with the rules governing agreements to surrender. 

Where landlord and tenant agree that a protected tenancy will be surrendered on a future date, the agreement is generally void unless the statutory validation process has been undertaken before it is entered into.

Yet an agreement to grant a future tenancy will often, as a matter of substance, also involve the surrender of the tenant's existing tenancy when the future tenancy is eventually granted. That creates a potential overlap.

There are also practical edge cases where the current law appears difficult or unsatisfactory:

• if the future tenancy is of different premises, or only part of the existing holding, section 28 may not apply; 
• if the future landlord is not the current landlord - for example, in a superior landlord or registration gap scenario - section 28 may not be available at all; and
• if the parties want the future tenancy to be contracted out, the contracting-out process will still be required before the agreement is entered into. 

The result is a patchwork of outcomes which may be difficult to explain to clients and may not reflect a coherent policy distinction. 

A useful example of the difficulties raised by section 28 is where a tenant under a protected tenancy wishes to expand and agrees terms for a lease of an enlarged unit comprising its existing premises plus adjacent space. 

In practice, that arrangement may be documented by an agreement for lease under which the future tenancy of the expanded unit is conditional on matters such as planning permission, landlord works, vacant possession of adjoining space, superior landlord consent or completion of reconfiguration works. 

At first sight this may look like a straightforward future renewal arrangement. If the future tenancy is of the tenant's current holding and additional land, it is capable of falling within section 28, because the section applies to an agreement for a future tenancy of "the holding" or "the holding and other land". If so, the agreement may have the effect that the tenant's existing protected tenancy ceases to benefit from the 1954 Act and comes to an end on the future commencement date specified for the enlarged lease. 

However, this throws up an important question: what happens if the conditions in the agreement for lease are not satisfied and the enlarged lease is never in fact granted? 

That question exposes the uncertainty in the current law. On one view, section 28 only produces its practical effect if the contemplated future tenancy is actually capable of proceeding in accordance with the agreement. On another, once the parties have entered into a written agreement falling within section 28, the existing tenancy may already have lost its protected status, even though the future lease remains conditional and may never be completed. 

That uncertainty becomes particularly acute where the tenant's current lease of the smaller unit expires before the conditions to the expanded lease are satisfied. If section 28 applies strictly by virtue of the written agreement, the tenant may find that the existing tenancy is no longer continuing with statutory protection under the 1954 Act, even though the replacement lease has not yet been granted. If, by contrast, section 28 does not operate unless and until the future lease actually takes effect, the tenant may remain in statutory continuation pending that outcome. The consultation notes that the present law is unclear on this point. 

The scenario also illustrates why section 28 can be difficult to reconcile with the wider statutory framework. In substance, the agreement for lease of the expanded unit is likely also to involve an agreement to surrender the tenant's current protected tenancy when the new lease is granted. Yet the interaction between section 28 and the validation process for agreements to surrender is uncertain. That creates a real drafting and structuring risk, especially where the future transaction is conditional rather than unconditional. 

In our view the law should make clear:

• whether a conditional agreement for a future tenancy can engage section 28 at all; 
• whether section 28 applies immediately on entry into the agreement or only once the conditions are satisfied; 
• what happens to the existing protected tenancy if the future lease does not proceed; and 
• how section 28 interacts with the validation process where the parties are in substance agreeing a future surrender and regrant. 

Without that clarity, parties documenting expansion, relocation or reconfiguration deals may face avoidable uncertainty at exactly the point where commercial certainty is most needed. 

Consultation Question 17 asks whether section 28 should be retained, reformed or repealed. 

Although framed as a technical issue, the underlying policy question is broader: when a landlord and tenant agree in writing that a new tenancy will be granted in the future, should that agreement be capable of displacing the protected status of the current tenancy without any further procedural safeguards? 

Proposals for reform

Possible reform options include:

• retaining section 28 but making clear expressly whether the validation process is, or is not, required; 
• requiring any agreement falling within section 28 to satisfy whatever validation process is put into place after the reforms for agreements to surrender; 
• confining section 28 to genuine renewal situations and clarifying its application where the new tenancy is of the same premises, the holding and other land, or different premises; 
• clarifying the treatment of conditional agreements for lease, including whether section 28 applies where the future tenancy depends on planning, works, consents or other conditions, and what happens if those conditions are not satisfied; and 
• extending the statutory framework so that future tenancy agreements involving superior landlords or incoming owners can be dealt with validly and transparently. 

Such reforms could preserve flexibility while reducing the scope for technical argument and accidental non-compliance.

In our view, section 28 serves a legitimate commercial purpose, but the current law is unsatisfactory in the way it fits with the rest of the 1954 Act. 

The key problem is not necessarily the underlying policy of allowing parties to agree a future renewal tenancy in writing. Rather, it is the lack of clarity around the legal consequences of that agreement and its interaction with the validation process for agreements to surrender. 

The problem is particularly acute where the future arrangement is conditional, involves expansion into additional space, relocation, reconfiguration or a change in the identity of the future landlord. These are not unusual cases. They are common features of modern asset management and retail leasing strategies. In those situations, the present law appears to leave too much room for technical uncertainty as to whether section 28 applies, when it takes effect, and what happens if the contemplated future lease never materialises. 

Where the parties have genuinely agreed a future tenancy, there is a strong practical case for the law to recognise and facilitate that agreement. However, it should do so transparently and consistently. The present position appears to leave too much room for technical uncertainty, especially in cases that fall near the boundaries of section 28 or involve more complex ownership structures. 

The strongest case is likely not for radical change, but for careful reform: preserving the utility of future tenancy agreements while making the statutory consequences clearer and more consistent.