Business Tenancies: the right to renew

Current project status

• Initiation: Could include discussing scope and terms of reference with lead Government Department
• Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project
• Consultation: Likely to include consultation events and paper, making provisional proposals for comment
• Policy development: Will include analysis of consultation responses. Could include further issues papers and consultation on draft Bill
• Reported: Usually recommendations for law reform but can be advice to government, scoping report or other recommendations

Ensuring Part 2 of the Landlord and Tenant Act 1954 works for today’s commercial leasehold market.

Our wide-ranging review will consider in detail how the right to renew business tenancies, set out in Part 2 of the Landlord and Tenant Act 1954, is working and will consider options for reform.

We have published a first Consultation  Paper and a summary. We have also published a survey.

Consultees can respond to the Consultation Paper here and to the survey here. The consultation and the survey are open until 19 February 2025.

The law

All businesses – from cafes and shops in town centres, to companies occupying offices, warehouses and factories – need suitable premises from which to operate. 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, allowing 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.

The problem

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, nearly 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.

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.

Today, 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, causing unnecessary cost and delay for both landlords and tenants, and preventing commercial space, such as our high streets, 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.

The project

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

Terms of reference

The Law Commission and the Government agreed terms of reference for the project, as follows:

For 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; and
• fostering a productive and beneficial commercial leasing relationship between landlords and tenants.

Read the project’s full terms of reference.

Our first Consultation Paper

Our first Consultation Paper was published on 19 November 2024. It asks key questions about possible options to reform Part 2 of the Landlord and Tenant Act 1954.

In particular, we consider the pros and cons of the current “contracting-out” model of security of tenure and consider three alternative models: mandatory security of tenure, abolition of security of tenure and a “contracting-in” model. We seek consultees’ views on which model they prefer.

We also seek 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 which we ask in our first Consultation Paper, we are also conducting a short survey to help us understand the impact of the 1954 Act on the current commercial leasehold market. We encourage consultees to respond both to the Consultation Paper and to the survey.

The first Consultation Paper and a summary of it are available under “Consultations and related documents” below. The survey is available here. A Welsh language version of the summary will be available shortly.

Watch Professor Nicholas Hopkins discuss our first consultation.

Our second Consultation Paper

After we have analysed the responses to our first Consultation Paper and reached conclusions on the issues it raises, we expect to publish a second, technical Consultation Paper.

The content of the second Consultation Paper will depend upon the responses we receive to our first Consultation Paper and the conclusions we reach as a result. In particular, we will use the responses to the first consultation to reach conclusions about which model of security of tenure to recommend and whether any change to the scope of the 1954 Act is needed. Once we have reached these conclusions, our second Consultation Paper will consider in detail how the recommended model and any change in scope would work. The timing of the second Consultation Paper will be confirmed after we have analysed responses to the first Consultation Paper.

Next steps

The consultation period for our first Consultation Paper will run for 3 months, closing on 19 February 2025.

• You can respond to the consultation online by clicking here. We encourage responses to be made online, but if you wish to submit a response by post or email then please see page i of the first Consultation Paper or page 3 of the summary for details of how to do that.
• You can respond to our survey here. Your answers to the survey will be analysed separately to your consultation response.

During the consultation period we will hold in-person events in various locations as well as online events, to give you a chance to hear about our project, learn more about our consultation and ask questions of the project team. We will share details of the in-person events shortly. The dates for our online events are set out below. Please click the following links for more information and to register:

Online event: 9 December 12pm-1pm

Online event: 4 February 6.30pm – 7.30pm

Contact

For general enquiries, or to be added to our email list, please contact us by email at: businesstenancies@lawcommission.gov.uk