The Landlord and Tenant Act 1954: A Gatwick Diamond Perspective
By David Farmer - Lime Finance Solutions
This article explores the Landlord and Tenant Act 1954 (LTA 1954), with a specific focus on why commercial mortgage lenders in the Crawley and Gatwick region typically insist that commercial leases be "contracted out" of the Act’s security of tenure provisions.
The Landlord and Tenant Act 1954 remains the cornerstone of commercial property law. Its primary purpose is to provide "security of tenure" to business tenants, ensuring that the local economy - from tech firms in Manor Royal to independent retailers in Crawley town center - enjoys a degree of stability.
Under Part II of the Act, a commercial lease does not automatically end on its expiry date. Instead, the tenant has a statutory right to:
A landlord can only oppose this renewal by proving one of seven limited "statutory grounds" (such as persistent late payment of rent or a firm intention to redevelop the building).
"Whilst lenders cannot make the borrower change the terms of a tenancy, they can always decline to lend where the terms of the lease in place are detrimental to the level that the value, or ease of resale, of the property is impacted" - David Farmer
Why Lenders Prefer Leases "Outside the Act" in the Gatwick Area
When a landlord takes out a commercial mortgage to buy or refinance a warehouse in Manor Royal or a retail unit in Crawley high street, the lender views the property primarily as security for the loan. Lenders generally prefer leases to be "contracted out" for several critical reasons:
If a borrower defaults, the lender may need to repossess and sell the property. A property that is "outside the Act" is significantly easier to sell with vacant possession. In high-demand areas like the Gatwick Diamond, most valuations assume 'vacant possession'. If the lease is "inside the Act," the lender inherits a sitting tenant with statutory rights, making the asset less "liquid" and potentially less attractive to the developers and owner-occupiers who drive the Crawley market.
Lenders value predictability. Under the Act, if a tenant in Three Bridges or Northgate applies for a new lease and the landlord (or lender in possession) disagrees on the terms, the matter goes to court. This process is:
If a landlord successfully opposes a lease renewal on "no-fault" grounds (such as redevelopment), they are often required to pay the tenant statutory compensation. Lenders view this as an unnecessary financial liability that reduces the "net" value of their security - a risk particularly high in Crawley’s fast-evolving commercial zones.
Lenders often finance Crawley properties with "value-add" potential (e.g., an old office block near Gatwick destined for conversion or modernisation). If tenants have security of tenure, the owner cannot easily clear the building. By requiring leases to be "outside the Act," lenders ensure the owner can regain control the moment leases expire.
How "Contracting Out" Works
To legally exclude the Act, a specific procedure must be followed before the lease is signed:
The Crawley Market Split
Manor Royal & Institutional Assets: Almost all leases in major industrial estates and prime office blocks near the airport are Outside the Act. Institutional landlords demand this to maintain total control over "exit strategies”. This is something more prevalent as we see more landlords look to sell to their existing tenants.
Short-Term Retail: In Crawley’s high street climate (2025–2026), there is a massive trend toward 3-to-5-year leases, almost all of which are contracted out. This allows landlords to pivot quickly if they want to convert a unit to a different "Use Class" (e.g., from retail to a restaurant or leisure space).
Small/Private Landlords: You are most likely to find "Inside the Act" leases in older, privately-owned buildings in areas like Ifield or West Green, where long-standing local businesses have "held over" on original leases signed decades ago.
What's Changing
The Act is currently undergoing its most significant review in over 20 years by the Law Commission, which could fundamentally change how businesses and landlords interact in the future.
Until then, understanding what is within the granted lease, and what a lender’s policy is toward those terms will continue to drive the availability of commercial mortgage lending. For any queries on how to finance your property then please get in touch.
David Farmer - Lime Finance Solutions
Date Published: 09/01/2026