Lawbite: Reform of business lease renewals – second consultation published

Summary

The Law Commission has published its second consultation paper in its project which focuses on reform of the Landlord and Tenant Act 1954 (1954 Act).  

This second consultation was published on 16 June 2026, on the same date as publication of a separate Commercial Leasehold consultation which looks at elements of the Landlord and Tenant (Covenants) Act 1995 and the rights of first refusal contained in the Landlord and Tenant Act 1987 so far as they relate to commercial leases.

The progress of these consultations will be closely monitored by investors, landlords and tenants of business property across England and Wales together with their professional advisers.

There is a lot to consider in this 524 page second consultation paper. This note highlights the key areas for potential reform and the provisional proposals which the Law Commission is seeking views upon.

Security of Tenure

The 1954 Act gives business tenants a right to renew their tenancies on expiry of their existing tenancies, known as “security of tenure”. This is an automatic right which applies to most business tenancies unless they are granted for a short term or the parties to the tenancy agree that they “contract out” of the right. The agreement to “contract out” needs to be reached before the tenancy is granted.

The Consultations

On 19 November 2024, the Law Commission published a consultation paper launching a wide-ranging review of Part II of the 1954 Act. 

The provisional conclusions reached following consideration of the responses received to that first consultation provide the basis for this second consultation paper. Those are that:

• the existing “contracted-out” model should remain.
• the existing list of excluded tenancies (i.e. tenancies that do not benefit from security of tenure) should remain unchanged. This list includes, for example, agricultural tenancies.
• the six-month minimum term threshold for protection should be increased, potentially to two years.

The focus of the Second Consultation 

The law Commission’s stated aim in launching this second consultation paper is to modernise the 1954 Act so that it is clear, efficient and works effectively for landlords and tenants.

Using 67 targeted questions the Law Commission aims to understand whether particular features of the 1954 Act need reform. It also sets out some proposals for those areas and indicates where it has discounted the possibility for reform. The paper is divided into 4 parts, and an overview of each part is set out below.

Part 1: Qualifying criteria & the “Contracting out” procedure: 

Qualifying criteria 

A wholesale refresh of the categories of excluded tenancies is not on the cards, but the Law Commission does make provisional proposals for changes to the minimum term threshold and to the treatment of periodic tenancies.

Amongst the provisional proposals are options that could see:

• an increase to the minimum term threshold from 6 months to either 1 or 2 years 
• some or all periodic tenancies being excluded from the protection of the 1954 Act
• an expansion to the types of tenancies that can be “contracted out” of the protection of the 1954 Act so that it is not limited to fixed term tenancies – so periodic tenancies could be “contracted out” if they are not excluded from protection entirely
• tenants of protected tenancies (i.e. ones in scope of the 1954 Act and which have not been “contracted out”) retaining 1954 Act protection on renewal regardless of whether they enter into a fixed or periodic tenancy – so the protection would effectively follow the protected tenant 

The proposals are aimed at solving existing problems with the regime and minimising the risks and unfairness associated with tenants acquiring protection inadvertently. In addition, removing more short-term tenancies from the regime would give parties greater flexibility.

“Contracting out” 

The consultation asks whether the “contracting out” process should be simplified. 

The Law Commission has, unsurprisingly, discounted a return to a system which requires court approval to “contract out”. 

The preferred proposal seems to be to incorporate the “contracting out” procedure within the lease, i.e. the prescribed warning and prescribed declaration would be within the lease itself. This approach is also proposed for “contracting out” agreements for lease, agreements to surrender and express surrenders (if “contracting out” became a requirement). 

Part 2: Terms of a renewal tenancy & Rent

Terms

The test used by the courts to decide terms for renewal other than rent is essentially set out in section 35 of the 1954 Act and interpreted in the well known 1983 decision in O’May. 

The Law Commission’s provisional conclusion is that the test should be retained. They suggest that a guided approach could, however, be taken when resolving disputes in relation to terms which relate to environmental matters, such as MEES. 

Rent 

The treatment of rent free periods in the assessment of rent under the 1954 Act has been the cause of disputes between landlords and tenants for years, and there are conflicting decisions from the county court. 

The Law Commission is asking questions about how rent free periods, in particular fitting out periods should be treated by the court when assessing rent.

It also seeks views on the treatment of turnover rent; (1) whether the courts should be capable of ordering such terms on renewal (whether or not the existing lease contains such provisions), and, if so (2) how the mechanics of such clauses should work where it comes to base rent, percentage of turnover etc. The Law Commission is seemingly unaware of the recent ban on upwards only rent reviews as some of its commentary conflicts with that legislation.

The Law Commission is also consulting on a simplification of the current interim rent regime, and on the possibility of expanding the provisions to allow parties to apply for an interim adjustment of rent pending agreement/court determination on the issue. 

Linked to interim rent, views are sought on the possibility of varying the valuation and commencement date for the renewal tenancy in such a way that interim rent provisions could be removed entirely. 

Part 3: Grounds of opposition & compensation

Grounds of opposition

There are currently 7 grounds on which the landlord can seek to rely on to oppose the grant of a new tenancy, grounds (a)-(g). 

No reform is proposed in relation to grounds (a) to (e) although consultees are invited to share their experiences with these grounds. The Law Commission also makes some interesting observations on matters such as the landlord’s ability to revise its offer of alternative accommodation where relying on Ground (d), confirming its view that the current statutory regime allows such revised offers to be made.

The key opportunities for reform are thought to be with ground (f) and (g), which are linked to redevelopment and own occupation respectively.

Where it comes to ground (f) the focus is on the requirement to carry out the redevelopment work on the termination of the tenant’s tenancy. In particular, whether the existing requirements are sufficient or should be expanded or reformed, and whether the MEES regime should be expressly referred to within ground (f). 

The Law Commission does not propose to amend the date on which intention must be shown, being the hearing date. 

No reform of the existing law surrounding ground (g) is proposed although the Law Commission is seeking views on:

1. a proposal to codify some of the recent case law to clarify the position where a landlord intends to carry out reconstruction works before occupying the premises for its own purposes; and
2. safeguards to protect tenants against landlords who use ground (g) to regain occupation only to continue substantially the same business as the tenant and benefit from that tenant’s goodwill.

Compensation

Where a landlord succeeds in opposing the grant of a new lease on grounds (e), (f) and/or (g) alone the tenant is entitled to statutory compensation. 

The Law Commission does not propose to change this to a more bespoke assessment of the tenant’s loss or landlord’s gain. It does, however, seek views on modernising the method of calculating that compensation. By way of example, it asks whether compensation should be linked to a multiple of the current rent rather than a multiple of the “rateable value” for the premises, what that multiple should be, and whether the threshold for the higher rate of compensation should be changed.

Part 4: Dispute Resolution process and other issues

The main focus of the final part of the consultation is the dispute resolution process. They key question here is whether disputes under the 1954 Act should remain in the county court or move to the Tribunals/High Court, and whether an alternative mechanism for dispute resolution should have a greater place in lease renewals. 

The Law Commission also ask whether the law should change to allow for a split jurisdiction – opposed renewals to stay with the county court and unopposed renewals moving to be decided by the Tribunal (with the Tribunal’s powers to award costs being altered). 

To promote efficiencies the Law Commission also seeks views on the creation of a bespoke pre-action protocol for lease renewals, standard case management directions, and an update to the rules governing making offers under the Civil Procedure Rules.

The current regime has been criticised for the delay and costs involved in bringing an action to conclusion through the courts, even where lease renewal is unopposed. Reform in this area would be welcome, but increasing the court & tribunal’s resources is equally important. 

The Law Commission also considers and seeks views on other points including issues that can arise with the registration gap and split reversion in the context of 1954 Act matters, and the interaction of the 1954 Act with other pieces of legislation.

Takeaways

• Any changes emerging from this review of the 1954 Act could lead to significant but not necessarily radical changes to the existing framework under the 1954 Act
• The second consultation paper is open for responses until 16 September 2026. Before that time the Law Commission will hold consultation events where they will explain more about their work on this project and the Commercial Leasehold project
• The Law Commission’s final recommendations for reform will be set out in a report, following consideration of the responses received. Timings for this stage can vary significantly depending on the consultation
• The report will make recommendations but, of course, only Parliament can change the law, it will therefore be some time before landlords and tenants will feel the impact of this consultation