The Law Commission’s second consultation on business tenancy renewal rights is open until 16 September 2026. The Law Commission provisionally concludes that the current model of security of tenure, with the ability to contract out, is to be retained, but the process for contracting out simplified. Key issues include renewal terms and rent, turnover rents, redevelopment opposition, compensation and dispute resolution. Landlords, tenants and property professionals should consider whether the proposals affect their portfolios, lease renewal strategy or approach to protected tenancies.
The Law Commission has launched a wide-ranging consultation: Business Tenancies: the right to renew, Consultation Paper 2: Modernising Security of Tenure (Consultation). This is an important opportunity for landlords, business tenants, representative groups and property professionals to influence the future operation of the Landlord and Tenant Act 1954 (LTA 1954). The Consultation examines a range of technical but commercially important reforms that could affect lease renewal strategy, contracting out, renewal rents, opposition grounds, and dispute resolution.
Consultation responses must be submitted by 16 September 2026.
Starting point
Those familiar with the outcomes of the interim statement published in June 2025 will be aware of the following provisional conclusions:
- The tenant’s default right to security of tenure should be retained, as should the parties’ ability to contract out of the LTA 1954
- The current threshold (6 months) for excluding short tenancies from the LTA 1954 should be extended
The Law Commission uses these outcomes as its starting point in the Consultation and examines in detail the LTA 1954 to assess further areas for reform. The Consultation is detailed (it runs to more than 500 pages and asks just under 70 technical questions) and cannot be fully summarised in a short article. The following is a brief introduction to some of the headline proposals.
Which tenancies benefit from security of tenure
The Law Commission consults on increasing the current six-month duration threshold with two options: (1) only fixed-term tenancies granted for more than two years are protected (but with the tenant's previous qualifying occupation being taken into account), or (2) only those granted for more than one year are protected (and the tenant's previous occupation is not taken into account).
It also recommends excluding new periodic tenancies from protection, whether express or implied. The exclusion of implied periodic tenancies will remove the risk which a landlord currently faces of allowing an implied tenancy to come into force following the expiry of the tenant's contracted out lease.
Contracting out and lease documentation
The Law Commission proposes a new contracting-out procedure under which the prescribed warning notice and the tenant’s prescribed declaration would be included in the tenancy itself, removing the separate notice/declaration process and abolishing statutory declarations. It also suggests that if a validation process is retained for agreements to surrender, it should mirror the new process proposed for contracting out leases.
Renewal terms, rent-free periods and interim rent
When setting the terms of a tenancy the Court must have regard to the provisions of the original tenancy and to “all relevant circumstances” (section 35 LTA 1954). The Court applies this by reference to the 1983 House of Lords decision in O’May v City of London Real Property Co Ltd.
It concludes that the current approach under O’May should be retained and invites consultees' views as to whether the scope of the 'relevant circumstances' referred to in section 35 LTA 1954 should be extended by statute to incorporate environmental matters, whether on a narrow basis limited to the Minimum Energy Efficiency Standards (MEES) or a wide basis concerned more generally with environmental/sustainability issues.
Consultees are asked to express views on whether the Court should factor in a rent-free fit-out period when fixing the renewal rent under section 34 LTA 1954. This issue arises frequently in practice where the parties do not agree the renewal rent.
The Law Commission acknowledges uncertainty around how the current law deals with turnover rents and other alternative rental models and asks how the Court should manage their inclusion. Where the current lease includes a 'turnover rental model', the Law Commission provisionally concludes the Court should be capable of ordering the model to be carried forward into the renewal tenancy.
The Law Commission consults on two options in relation to interim rents:
- "Option A: one fixed valuation date, with the renewal tenancy being backdated to commence on that date."
- "Option B: retain two valuation dates (one for interim rent, and one for the renewal tenancy) but simplify the basis on which interim rent is assessed."
It considers Option A would largely remove the necessity of interim rent rules and Option B simplifies the valuation exercise and removes anomalies under the current law.
Opposing renewals
A landlord can end a tenant's statutory right to renew its tenancy by asserting statutory grounds of opposition apply. The Law Commission has no proposals for reform of grounds of opposition (a) to (e) and asks if these are operating appropriately.
It invites views on whether under ground (f) (redevelopment) the existing list of works that can be relied on by a landlord to satisfy ground (f) (i.e. demolition, reconstruction and substantial construction) is sufficient.
It also asks whether the list of works should have a 'purpose/motive filter' and how any reform should interact with MEES. A further option is to replace the existing categories of works with a single ‘substantial works’ test. The Law Commission makes no proposal to change the existing law regarding the date at which the landlord must prove its intention, which date is the date of the final hearing.
In relation to ground (g) (landlord's own occupation) the Law Commission recommends changing the law so that a landlord can carry out alterations before occupying the premises and invites views on options for addressing the situation where the landlord obtains possession and then undertakes the same business as the tenant.
Compensation and dispute resolution
The Law Commission invites views on compensation in particular around the rateable value measure, whether the higher compensation entitlement after 14 years’ occupation should remain or be replaced, and circumstances where parties should be able to exclude compensation.
The Law Commission notes particular concern about the time and cost involved in resolving lease renewals. It also notes that the LTA 1954 lacks bespoke processes or documents to supplement the court’s case management powers. The Law Commission proposes four possible options for change in terms of dispute resolution, two of which involve greater use of the Tribunal (being the First Tier Tribunal and the Upper Tribunal).
The Consultation asks whether each party to a lease renewal dispute should be given the right to refer the dispute to non-determinative alternative dispute resolution, such as early neutral evaluation or mediation. If one party exercised the right, the other party could not object.
Other technical issues
Other specific areas considered include the consequences of the registration gap for the LTA 1954, split reversions, the landlord serving a section 25 notice on a tenant out of occupation, the scope of a section 27(2) notice, the use of deadlines generally in the LTA 1954, the nature of the tenant's occupation attracting security of tenure, contractual break clauses in protected leases, whether the 1954 Act makes adequate provision for a landlord to obtain vacant possession where it is planning to undertake a large scale or complex redevelopment project (the detailed example given is a landlord's redevelopment of a shopping centre) and the interaction between MEES and the LTA 1954.
Responding to the Consultation
The proposals in the Consultation do not represent settled law or final government policy.
The length and complexity of the Consultation paper do not lend themselves to a quick review. Potential consultees might find that the accompanying summary document (Business Tenancies: the right to renew Summary of Consultation Paper 2: modernising security of tenure) provides a more digestible entry point to the consultation.
It can be found here: Business tenancies: the right to renew – Summary of consultation paper 2
If the proposals may affect your portfolio, lease renewal strategy or approach to protected tenancies, please contact us to discuss the Consultation or the possibility of submitting a response.
