The Landlord and Tenant Act 1954: A Gatwick Diamond Perspective
This article examines the Landlord and Tenant Act 1954 (LTA 1954) through a local lens, specifically focusing on why commercial mortgage providers across Crawley and the Gatwick region typically require leases to be "contracted out" of the Act’s security of tenure protections.
The LTA 1954 remains a fundamental pillar of commercial property legislation. Its core objective is to offer "security of tenure" to business occupants, fostering economic stability for everyone from the tech innovators in Manor Royal to the independent shopkeepers in Crawley’s town centre.
Under Part II of the legislation, a business lease does not simply terminate on its expiry date. Instead, the occupant gains specific statutory protections:
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Holding Over: The right to remain in the property on existing terms after the formal lease period concludes.
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Renewal Rights: The ability to request a new lease on comparable terms at the prevailing market rate.
A landlord can only contest this renewal by proving one of seven specific "statutory grounds," such as a documented intention to redevelop the site or persistent rental arrears.
"While lenders cannot dictate the specific terms of a tenancy to a borrower, they reserve the right to decline funding if the lease terms negatively impact the property's valuation or its ease of resale." — David Farmer
Why Lenders Favor Leases "Outside the Act" in the Gatwick Area
When a landlord seeks a commercial mortgage for a Manor Royal warehouse or a Crawley high street retail unit, the lender views the asset primarily as collateral. To protect this security, lenders usually prefer "contracted out" leases for several vital reasons:
1. Liquidity and Vacant Possession Value Should a borrower default, the lender must be able to repossess and sell the asset efficiently. Properties "outside the Act" are far easier to market with vacant possession. In the competitive Gatwick Diamond, most appraisals assume the building is unoccupied. If a lease is "inside the Act," a potential buyer inherits a sitting tenant with legal rights, making the property less "liquid" and potentially less appealing to the developers who drive the Crawley market.
2. Removing Renewal Uncertainty Lenders prioritize financial predictability. Under the Act, if a tenant in Northgate or Three Bridges disputes renewal terms with the landlord, the case may move to court. This path is often:
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Protracted: Taking upwards of 12–18 months to conclude.
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Costly: Legal expenses can quickly diminish the value of the security.
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Uncertain: A judge, rather than the lender or landlord, determines the final rent and lease conditions.
3. Avoiding Statutory Compensation Liabilities If a landlord successfully blocks a renewal on "no-fault" grounds (like redevelopment), they are frequently legally obligated to pay the tenant compensation. Lenders view this as a financial drain on the asset's net value—a significant risk in Crawley’s rapidly changing commercial landscape.
4. Streamlining Redevelopment Plans Many Crawley properties are financed as "value-add" opportunities, such as older office blocks near Gatwick earmarked for modernization. Security of tenure prevents an owner from easily clearing a building for works. By insisting on "outside the Act" leases, lenders ensure the owner can regain control immediately upon lease expiry.
How the "Contracting Out" Process Works
To legally bypass the Act, a formal procedure must be completed before the lease is executed:
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The Warning Notice: The landlord issues a formal document explaining the rights the tenant is relinquishing.
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The Declaration: The tenant signs a statement acknowledging they understand these implications.
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The Lease Provision: The final contract must explicitly state that sections 24–28 of the LTA 1954 are excluded.
The Crawley Market Landscape
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Manor Royal & Institutional Assets: Nearly all leases in major industrial zones and prime airport-adjacent offices are "Outside the Act." Institutional owners require this level of control to manage their exit strategies—a trend growing as more landlords look to eventually sell to their tenants.
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Short-Term Retail: In the current Crawley high street environment (2025–2026), there is a notable shift toward 3-to-5-year leases. Almost all are contracted out, allowing landlords to pivot quickly if they wish to change a unit’s "Use Class" from retail to leisure or dining.
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Small/Private Landlords: "Inside the Act" tenancies are most common in older, privately held buildings in areas like West Green or Ifield, where local businesses have occupied the same space for decades under original agreements.
Looking Ahead
The Law Commission is currently conducting the most significant review of the Act in two decades, which may fundamentally reshape the relationship between landlords and business tenants.
Until then, securing commercial finance will continue to depend on the specific terms of the lease and a lender’s internal policies regarding those terms.
If you have questions about financing your property or navigating these requirements, please get it touch or find us at the next GDB meeting.
David Farmer – Lime Finance Solutions
