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.   

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 nearly 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. And, as part of its Anti-Social Behaviour Action Plan, Government is looking to revitalise high streets and town centres, creating thriving spaces which landlords, businesses and communities choose to invest in and use.  

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 Department for Levelling Up, Housing and Communities in March 2023, having been announced as part of the Government’s Anti-Social Behaviour Action Plan. The Law Commission and the Department have 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.

Next steps 

We anticipate publication of our consultation paper in Autumn 2024.

Contact 

For general enquiries, please contact us by email at businesstenancies@lawcommission.gov.uk.