Ruth Clare and Jill Carey of Freeths on why rental law has mixed-use issues

Ruth Clare is a partner in Freeths’ Manchester office

Jill Carey is a partner in Freeths’ Manchester office

Several years and two governments in the making, it introduces stronger tenant protections and rights for the UK’s estimated 11 million private renters.

However, this much-anticipated swing of the pendulum from landlords to tenants will have various unintended consequences. Commercially, Savills has estimated a £48bn drop in the rental property market last year as landlords left the sector, which may put more pressure on supply for private renters. Legally, the RRA must be carefully considered by all those who own and occupy buildings with residential elements let to third parties.

The RRA will affect traditional residential lettings, but it will also apply to a mixed-use property such as a shop or café on the ground floor with flats above that are let to individuals. Therefore, it will affect asset management for parties that find themselves – even inadvertently – a residential landlord because they own or occupy such a building and sublet residential parts.

The RRA must be considered by all those who own and occupy buildings with residential elements let to third parties

On 1 May 2026, non-exempt existing assured shorthold tenancies will be replaced by assured periodic tenancies, and the landlord’s right to terminate for no fault (the Section 21 procedure) will be abolished. Fixed terms will be replaced by rolling monthly or weekly agreements and landlords will only be able to require tenants to vacate in limited circumstances. Revised grounds for possession include: the landlord selling or moving into the property – not to be exercised within the first 12 months and, after that, four months’ notice must be given; and rent arrears or antisocial behaviour.

Renters’ rights: the RRA will apply to a mixed-use property such as a shop or café with flats above

This might put a tenant of a mixed-use building in a difficult position. At the end of a lease, a tenant will be required to give up possession. It is also common practice for a break option to include a strict pre-condition that the tenant hands back the property free from any underleases or occupiers. If it fails to do so, the landlord may require the lease to continue for the whole contractual term, despite the tenant’s desire to terminate.

Unexercisable options

Even if there are grounds to serve notice, and if it can be served in time, should the subtenant of the residential parts then fail to vacate, court proceedings will be required to secure possession, which may well take the tenant beyond the lease expiry or the break date. Consequently, tenants may find that their break options become unexercisable, or that they face a claim for failure to hand over the premises with vacant possession.

Unintended consequences of this aspect of the RRA might therefore include:

• Mixed-use tenants being unable to give back vacant premises at the end of the term or to comply with a break condition. This raises the question of liability for such a ‘breach’ where the grounds to terminate the residential tenancy have become significantly more limited than at the grant of the lease.
• Landlords finding it difficult to let a whole mixed-use building to a tenant that may not want to take on the now more onerous role of residential landlord, leaving the landlord to manage the residential elements separately.
• Landlords and commercial tenants choosing to leave residential parts vacant, with tenants concerned about the ability to hand back possession, and landlords concerned about the ability to secure possession for redevelopment. If such residential properties sit empty, this may worsen the current housing crisis.
• Lenders being less willing to lend against mixed-use properties if the ability to gain possession or dispose of the asset is restricted.
• Tenants requiring new terms in leases, for example carving out any residential sublettings from yield-up obligations.

Both landlords and tenants of mixed-use properties should therefore be aware of these issues and take early legal advice on any letting or where an existing lease is due to be terminated.

Ruth Clare and Jill Carey are partners in Freeths’ Manchester office