Part 2 of the Landlord and Tenant Act 1954 gives most business tenants in England and Wales the right to remain in their premises and apply for a new tenancy when their existing agreement ends. This is commonly known as security of tenure.
Landlords and tenants can agree to exclude this right before a lease is granted through a formal process known as ‘contracting out’. However, aspects of the legislation are now regarded as unclear, burdensome, and out of step with current commercial practices.
Time will be needed to implement reform
Overall, we welcome reforms that remove technical traps and align the Act with the day-to-day commercial property market. The final framework must remain practical, proportionate, and capable of adapting as leasing practices and regulatory requirements change.
We have recommended a transitional period of at least 12 months before any reforms take effect. This would give all stakeholders time to understand the new rules, review their procedures, and prepare updated agreements.
From structural reform to practical detail
After an initial consultation in November 2024, the Law Commission provisionally concluded that the existing contracting-out model should remain. It also decided that the current six-month threshold, below which short fixed-term tenancies are normally excluded from the Act, should be increased.
The second consultation has taken these earlier conclusions as its starting point and examines the practical operation of the Act, including:
- which tenancies should qualify for security of tenure
- how landlords and tenants contract out
- how renewal terms and rents are decided
- the grounds on which a landlord can oppose renewal
- compensation when a tenancy is not renewed
- whether disputes should remain in the county courts
- the potential role of mediation and other forms of alternative dispute resolution
A simpler threshold for protected tenancies
The consultation presents two options for raising the duration threshold.
Option A would exclude fixed-term tenancies of up to two years while retaining the ‘chaining provision’, which can bring a series of shorter tenancies within the Act based on the tenant’s overall period of occupation.
Option B would set the threshold at one year and abolish the chaining provision.
We favour Option B because it would provide greater legal certainty. Whether a tenancy qualifies for protection could be established more easily from the agreement itself, reducing the risk that security of tenure arises unintentionally through a series of short-term arrangements.
We also broadly support excluding new periodic tenancies from the Act. These agreements are often used where both parties want a flexible or temporary arrangement. However, small businesses and start-ups may have less negotiating power and could be particularly affected by the loss of protection. Clear guidance will be needed so that tenants understand the implications before agreeing to periodic occupation.
Fixed-term or express written periodic tenancies granted to an existing protected tenant should remain within the Act unless the parties make an informed decision to contract out.
Bring contracting out into the lease
The current contracting-out process requires the landlord to serve a formal warning notice and the tenant to make a declaration before entering into the lease. The process can be time-consuming, and procedural mistakes can create uncertainty even where the parties’ intentions are clear.
We are happy to back the Law Commission’s proposal to replace this with an integrated process inside the lease. A prescribed warning would explain that the tenancy is being contracted out and what this means for the tenant. The tenant would then sign a declaration confirming that they have read and understood the warning. We also support allowing all written tenancies within the scope of the Act to be contracted out, rather than limiting the process to fixed-term tenancies. This would remove technical anomalies and ensure that the outcome reflects the parties’ commercial intentions.
Clearer arrangements for surrendering premises
A similar approach is proposed for agreements to surrender a protected tenancy. Safeguards must remain so that tenants understand they are giving up renewal rights, but the process should be simpler and less vulnerable to technical mistakes. The law should also make clear that landlords and tenants can agree to surrender only part of the premises. This would give businesses greater flexibility where they no longer need all the space they occupy and allow landlords to put returned space to more effective use.
However, tenants should not be permitted to enter into surrender agreements with prospective landlords before a property purchase has completed. A prospective landlord may never acquire the legal interest, creating uncertainty about the tenant’s rights and whether the agreement can be enforced. At a minimum, any such agreement should only take effect once the prospective landlord has acquired the property.
Renewal rents should reflect commercial negotiation
The consultation considers how courts determine the terms and rent of a renewal tenancy, including cases involving turnover rents and other alternative rental models.
We are in favour of keeping the existing test used by courts when deciding disputed lease terms. It provides flexibility to consider changing circumstances while recognising the agreement originally reached by the parties.
Environmental requirements could be treated as a relevant factor, but this should focus on clear legal duties, such as the Minimum Energy Efficiency Standards (MEES), rather than broad sustainability objectives that could create uncertainty or impose unreasonable costs.
Existing tenants should not be given the equivalent of a rent-free fit-out period when calculating the renewal rent. These incentives are generally offered to new occupiers to reflect the cost and risk of taking on new premises and may not be appropriate for a tenant already in occupation. Nor should courts routinely impose a turnover rent or change the rental model against the wishes of either party. The choice of rental structure is a significant commercial decision and should normally be settled through negotiation.
Redevelopment provisions must recognise modern buildings
Ground F allows a landlord to oppose renewal where they genuinely intend to demolish, reconstruct or carry out substantial construction work that cannot reasonably be completed while the tenant remains in occupation.
Replacing the existing categories with a more flexible test based on whether substantial works are intended is a positive move. Modernisation, refurbishment, and energy-efficiency improvements may not fit neatly within the current wording, despite requiring vacant possession. A broader test would help landlords adapt commercial buildings to new construction methods, occupier expectations and energy standards. Existing safeguards should remain, including the requirements for a genuine intention to carry out the work and evidence that possession is reasonably necessary.
The interaction between the 1954 Act and MEES will become increasingly important as requirements for commercial buildings develop. Landlords and tenants will also need clear guidance, specialist advice and appropriate financial support to help improve older premises.
Courts must become more efficient
Propertymark believes the county court should remain the main forum for resolving lease renewal disputes. Commercial lease renewals can involve complex questions about valuation, redevelopment and contractual terms, and the courts remain well placed to deal with these issues. However, greater digitalisation, improved case management, and standard directions are all needed to reduce delays and lower administrative costs.
A pre-action protocol, with different processes for opposed and unopposed renewals, should be introduced to encourage the early exchange of information, negotiation, and proportionate use of alternative dispute resolution.
Maintain predictable compensation rules
When renewal is refused on certain statutory grounds, tenants may be entitled to compensation based on the property’s rateable value.
We support retaining rateable value as the basis of the calculation, together with the current standard, and higher-rate multipliers and the 14-year threshold for higher compensation. Moving to a calculation based on current rent could create difficulties for turnover rents, stepped rents and other variable rental models.
The ability to exclude compensation for some shorter protected tenancies should also remain. Removing this flexibility could make landlords more reluctant to grant protected tenancies and encourage greater use of contracting out.
Any exclusion must be transparent, with prescribed wording in the tenancy so that the tenant understands the rights they are giving up.
