Mishcon de Reya page structure
Site header
Main menu
Main content section
abstract glass building

Reforming the 1954 Act for a greener future: Isabel Emerson-Lich & Camilla Chorfi for EG

Posted on 9 April 2024

This article was first published by EG, 8 April 2024

Property Litigation Managing Associate Isabel Emerson-Lich and Camilla Chorfi of Falcon Chambers, look at how the Act could be reformed to become a vehicle for environmental change.


The Law Commission consultation paper on the future of the Landlord and Tenant Act 1954 is expected in the autumn. Besides seeking to explore a more user-friendly renewal framework, one of the key considerations is the “increased focus on the environmental sustainability of commercial properties”.

Could a new and improved version of the 1954 Act become a vehicle for environmental change?

Net zero and the market

The government aspires to bring all greenhouse gas emissions to net zero by 2050. Despite having abandoned certain aspects of that strategy last year (most notably residential sector requirements under the Minimum Energy Efficiency Standard regulations), the government has reiterated its commitment with regard to emissions.

Labour has similar targets, so the drive towards low-impact commercial real estate is not going away any time soon. The sector has responded through an increased focus on assets’ sustainability credentials, and businesses are increasingly pledging to comply with green policies on a voluntary basis.

This is nothing new. “Green leases”, which impose obligations aimed at reducing the environmental impact of a property, have become increasingly common in the last decade. This has resulted in various initiatives such as the relaunched Better Buildings Partnership green clauses toolkit, with the stated aim of being an industry-transforming initiative, and the Chancery Lane Project’s model green dilapidations clause, aimed at the reuse of goods and materials.

Clauses range from “light green”, which are unenforceable, intended to set aspirations and common goals, to “dark green”, which set specific obligations and are therefore easier to enforce – with shades in between.

More recently, the less clearly defined notion of promoting not only environmental, but social and governance goals in the form of ESG provisions, has also risen in popularity.

There are, of course, a plethora of difficulties surrounding the enforcement of such clauses where the nebulous threat of reputational damage fails.

The renewal context

All is well where parties can reach agreement. However, a significant proportion of commercial leases will be subject to the security conferred by the 1954 Act.

Where agreement cannot be reached in this context, a tension has arisen between the current legislative framework and the drive to promote sustainability.

Since O’May v City of London Real Property Co Ltd [1977] 1 EGLR 76, the established “starting point” for a renewal lease granted pursuant to the 1954 Act is the existing lease. The party wishing to depart from this has to justify the proposed departure to the court – the premise being that the existing lease represented the free bargain of the parties, which the court should be slow to interfere with.

However, in 2024, the effect of this approach is that where there is no consensus in relation to ESG or green provisions, the court will ordinarily have very limited regard to whether such clauses are common in the market or make sense from a commercial or sustainability perspective.

Landlords often push to protect themselves against the effects of MEES non-compliance by tenants. Clipper Logistics plc v Scottish Equitable plc (Sheffield County Court, Claim No G00SE930, 7 March 2022) illustrates this. The landlord sought clauses prohibiting the tenant from doing anything to undermine the current EPC rating – all dark green. Despite acknowledging the risks to which the landlord would be exposed, the court refused to order these clauses on the basis they were not in the existing lease and only allowed a provision requiring the tenant to return the premises with the same EPC rating as at the date of the renewal lease.

The case for reform

Clipper has shone a light on why the 1954 Act might need reform to permit a more flexible approach. Parliament has forced a landlord to bear the burden of the environmental integrity of the building, often at great expense and exposing the landlord to financial and other sanctions. Despite this, landlords have no effective means of restraining their tenant from undermining those efforts and investment. This tension is likely to increase as further green schemes are imposed on landlords in an effort to achieve the 2050 target.

In the context of these pressing national and global climate targets, there is plainly a case for a more flexible approach by the courts, but the challenge will be to balance freedom of contract with broader social objectives.

The Court of Appeal considered similar renewal provisions in the context of the Electronic Communications Code in On Tower UK Ltd v JH & FW Green Ltd [2021] EWCA Civ 1858; [2022] EGLR 3. The court concluded that, while the terms of the existing code agreement must be taken into account on renewal, the judge’s discretion should not be restricted to the terms of the existing lease in the same way as the 1954 Act.

Instead, the focus should be on giving effect to the objective of the Code. Despite some structural similarities, the 1954 Act and the Code’s underlying policy considerations are very different. The Code seeks to ensure access to high quality telecommunications services, enacted against a highly dynamic telecommunications market which required agreements to be “future proofed”.

The 1954 Act, on the other hand, seeks to balance tenants’ interests in limiting business interruption with landlords’ interests, such as being able to recover possession for redevelopment and obtaining a market rent.

There is a compelling argument that any new and improved version of the 1954 Act should be responsive to the acute need to reduce the environmental impact of real estate, while of course still balancing the respective parties’ objectives (and possibly means). A tenant who objects to court-determined terms can, after all, ultimately walk away.

Inevitably, there are a number of obvious problems with the notion that the court should be able to introduce even commonplace green terms into a tenancy:

  1. The court must not undermine parliamentary intention with regard to the burden of legislation such as MEES – that currently sits with landlords, but would be transferred directly or indirectly on to tenants.
  2. There would still be scope for argument around the actual utility of such covenants where their enforceability is questionable.

The Law Society has resisted calls that a breach of a green obligation should allow a landlord to forfeit. It is easy to see why. Should a tenant be at risk of losing its lease for failing to recycle, for example? It is also unclear (a) in what circumstances a green term would realistically be enforced by injunctive relief or specific performance; and (b) how

any damages to the landlord as a result of a tenant’s breach would be quantified, if there is no obvious measurable loss. This might lead the court to ask, if the law denies green lease clauses any teeth, what is the point of imposing them?

It goes without saying that, in the absence of a well drafted and (probably) enforceable provision, the court should not be required to engage in greenwashing of the renewal tenancy to suit a party’s public relations objectives.

One option might be that landlords could ask the court to order prescribed consequences for breaches of the green terms they seek to introduce. This could include specific rights of re-entry, liquidated damages clauses, and (possibly) landlord break clauses, although the latter may be harder to reconcile with the existing grounds for termination – unless of course the commission also revisits the scope of security of tenure when a break is exercised.

Cases addressing whether a tenant should be able to break if the landlord fails to comply with its MEES obligations have recently settled, so the position under the current law remains unresolved.

What might reform look like?

Perhaps the 1954 Act is not the perfect vehicle for radical green change, but it must play its part.

Although the 1954 Act requires that the court take “all relevant circumstances” into account in addition to the terms of the current tenancy, the O’May gloss means that the odds are stacked against contested changes to the terms of a tenancy. This means that tenants are pushing at an open door when resisting the introduction of green clauses.

One solution may be a list of non-exhaustive factors the court should have regard to in addition to the existing lease. Such a list may include the limitation of adverse environmental impact by the tenant’s occupation of the property (so far, of course, as is fair and proportionate in all the circumstances).

Although the court should not undermine parliamentary intention by transferring one party’s statutory obligation to another, it should be possible to restrain conduct which obstructs or undermines the other’s efforts. This mechanism would strike a fair balance between honouring the substance of the parties’ previously negotiated arrangement and empowering the court to impose fair and proportionate obligations on a party reluctant to do its fair environmental share.

The Law Commission will no doubt formulate apt ways of improving aspects of the 1954 Act which inhibit the sector’s pro-climate modernisation, while preserving those aspects of the statute which have served us well to date. It will be interesting to see what shape any new Act will take.

How can we help you?

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

Crisis Hotline

I'm a client

I'm looking for advice

Something else