Business tenancies: the right to renew

Ensuring Part 2 of the Landlord and Tenant Act 1954 works for the modern commercial leasehold market. We have published an interim statement setting out our provisional conclusions in relation to the issues raised in our first consultation. We will next publish a second consultation paper; timings for this publication will be confirmed in due course.

Background (Back to top)

All businesses – from cafes and shops in town centres, to companies occupying offices, warehouses and factories – need suitable premises to operate from. Many of these businesses occupy their premises under tenancies, rather than owning the freehold.

Part 2 of the Landlord and Tenant Act 1954 gives business tenants the right to renew their tenancies when they would otherwise come to an end. This enables businesses to remain in their premises. This legal right to a new tenancy is often referred to as “security of tenure”.

Most business tenants automatically have the right to renew under the Act unless, before any lease is granted, they agree with their landlord that the right to renew should not apply. In order to do that – by a process known as “contracting out” – various formalities must be followed.

Security of tenure for business tenants was introduced by Part 2 of the 1954 Act following the Second World War. The legal framework is, therefore, over 70 years old. While the Act has been updated in the past to improve its flexibility and reduce the burdens on landlords and tenants associated with its operation, it is now around 20 years since the last significant updates were made.

Problem (Back to top)

Since the Act was last reviewed, the world around us has changed and so has the commercial leasehold market. The rise of the internet has led to a dramatic increase in online retail and services, and landlords and tenants have been impacted by world events including the financial crisis of 2008 and the Covid-19 pandemic. Government priorities have also evolved during this time; for example, there is now an increased focus on the environmental sustainability of commercial properties.

We have heard that the Act is not working well for landlords or tenants. Those affected by the Act report that aspects of the law are burdensome, unclear and out-of-date. There is concern that parts of the Act are standing in the way of modern commercial practices. This is causing unnecessary cost and delay for both landlords and tenants, and preventing commercial space from being occupied quickly and efficiently.

Often, landlords and tenants entering into business tenancies decide to contract out of the Act, meaning that tenants do not have the right to renew that the Act would otherwise give them.

Project (Back to top)

This project was referred to the Law Commission by the then Department for Levelling Up, Housing and Communities in March 2023. It originally formed part of the then Government’s Anti-Social Behaviour Action Plan.

Terms of reference

Our Terms of Reference require the Law Commission to conduct a wide review of Part 2 of the Landlord and Tenant Act 1954 with a view to modernising commercial leasehold legislation, with an emphasis on:

creating a legal framework that is widely used rather than opted out of, without limiting the rights of parties to reach their own agreements, by making sure legislation is clear, easy to use, and beneficial to landlords and tenants
supporting the efficient use of space in high streets and town centres, now and in future, by making sure current legislation is fit for today’s commercial market, taking into account other legislative frameworks and wider government priorities, such as the “net zero” and “levelling up” agendas
fostering a productive and beneficial commercial leasing relationship between landlords and tenants

Our full Terms of Reference, including aspects of the law that are specifically out of scope, are available here.

First consultation paper

Our first consultation paper was published on 19 November 2024 and the consultation period ended on 19 February 2025. In that consultation, we asked key questions about possible options to reform Part 2 of the Landlord and Tenant Act 1954. In particular, we considered the pros and cons of the current “contracting-out” model of security of tenure and considered 3 alternative models:

mandatory security of tenure
abolition of security of tenure
contracting-in model

We also sought views on whether or not the types of business tenancy which can benefit from security of tenure – the Act’s scope – are the right ones.

In addition to the questions in our first consultation paper, we also conducted a short survey to help us understand the impact of the 1954 Act on the current commercial leasehold market.

We have now analysed responses to our first consultation paper and our survey.

We have published an interim statement setting out our provisional conclusions in relation to the issues raised in the first consultation. We have provisionally concluded that:

1. There should be no change to the model of security of tenure. The existing contracting-out model should remain.

2. The threshold for excluding tenancies from the scope of the Act based on the tenancy’s duration should be increased from 6 months. In our second consultation paper, we expect to consult on increasing the threshold to 2 years.

3. Otherwise, there should be no change to the Act’s scope.

We will shortly publish a compilation of the responses we received to our first consultation paper.

Next steps: Our second consultation paper

We will next publish a second consultation paper. This second consultation will focus on the technical detail of how the 1954 Act might be reformed, in light of the provisional conclusions reached on our first consultation. We will confirm timings for publication of the second consultation paper in due course.