The Law Commission has published an interim report on its initial conclusions about security of tenure for business leases.
The recommendation published last week in the Law Commission’s part one first stage consultation paper says that there should be no change to the basic "security of tenure" rule under the Landlord and Tenant Act 1954 part 2. It’s a decision that directly contradicts the stated aim of the British Property Federation (BPF) which was lobbying for the right to renew a business lease not to be the default position.
The BPF’s recommendation was that moving from an ‘opt-out’ to ‘opt-in’ approach, plus excluding leases of five years or less from security of tenure, would be the right way to go. This, they argue, would “streamline the leasing process, support the decarbonisation of buildings, make it easier to redevelop and repurpose space in town centres and reduce the burden on the courts.”
However, The Commercial Tenants Association, which offers free advice to commercial tenants, lobbied for the status quo, that security of tenure be retained as the "opt-out" default position for commercial leases. It has said:
“We agree with the Law Commission's interim statement following the Commercial Tenants Association report to the Law Commission earlier this year, whereby we argued that there should be no change to the model of security of tenure.
“The Law Commission has stated that 'there should be no change to the model of security of tenure and that the existing contracting out model should remain'. We at the Commercial Tenants Association look forward to reading the compilation of responses, and we will be preparing a second report for the next stage of consultation.”
Those with an interest in commercial property may know that The Law Commission is currently undertaking a two-part consultation on the reform of the Landlord and Tenant Act 1954 (the 1954 Act), particularly concerning Part 2, which deals with "security of tenure" for business tenants.
The cries for reform were prompted by criticisms that the current system is outdated – it has not been changed in 20 years - and needs to be updated to reflect the modern commercial leasehold market, they argue.
Part 2 of the Landlord and Tenant Act 1954 which applies to all business (commercial) tenancies in England and Wales gives business tenants the right to renew their tenancies when they would otherwise come to an end. This gives tenants the right to remain in their premises and to renew their lease on similar terms to the original.
It gives businesses some stability and security, knowing that if they build up a business in a particular location they will not be moved on, most likely losing trade and customers in the process.
This right to remain is automatic (mandatory) unless the landlord and tenant reached an agreement, following a specific legal process, before any lease is granted, that this right to renew should not apply. The legal process is known as “contracting out”. *
The idea of security of tenure for business tenants has existed continuously (with some minor amendments) since soon after WW2. However, it is argued that the world has changed dramatically in the last 70 years. The internet, online retail and services, and landlords and tenants having experienced disruptive world events including the financial crisis of 2008 and the 2019 Covid-19 pandemic, and there’s now a focus on the environmental sustainability for commercial properties.
As a result, people are arguing that the Act is outdated and not working well for landlords or tenants, hindering modern commercial practice. They argue that the present process is causing delays, is costly and prevents commercial space from being occupied quickly and efficiently.
The 1954 Act and “Security of Tenure” which Part 2 of the 1954 Act deals with, grants business tenants a right to renew their leases, providing them with the right to renew their leases at the end of the fixed term, known as “security of tenure”.
The Law Commission has launched a two-part consultation to explore the future of security of tenure under the 1954 Act, including alternative models and also the full scope of the Act.
It will address whether to retain the current "contracting out" model of security of tenure or adopt a different model, the types of tenancies that should benefit from security of tenure and the appropriate length of tenancies to be protected by the 1954 Act.
The Commission will consider various alternative models, including having no security of tenure, a "contracting-in" model, a "contracting-out" model (as at present) or mandatory security of tenure for all leases.
So far, the Commission is issuing an interim statement which outlines its provisional conclusions to its study, which is meant to inform stage two of the consultation paper.
On 4 June 2025 the Law Commission issued its interim statement setting out its provisional conclusions:
The provisional conclusion is that the existing “contracting out” model is the right one. The commission states that the arguments in favour of retaining this model are powerful, and it received the broadest support among consultees.
A significant number argued that the current model strikes the best balance between landlords and tenants and that a change in the model would cause “unwarranted disruption” to the commercial leasehold market.
Some tenancies such as agricultural tenancies are excluded from the 1954 Act and the Act currently excludes commercial tenancies from security of tenure when they are under 6 months. The conclusion here was that agricultural tenancies should remain excluded but that the six months threshold should be increased, perhaps to 2 years? The second consultation paper will deal with this.
Otherwise, the commissioners state, there should be no change to the Act’s scope.
For full information about this Law commission review, see here
* The contracting process means that a tenant agrees to waive its statutory rights under the Landlord and Tenant Act 1954 Part 2 concerning security of tenure. This must be agreed between the parties prior to entering into the lease following a strict procedure:
The landlord serves notice (a “warning notice”) on the tenant which explains that the proposed lease will not include tenant protection under the LTA 1954. The notice must be in prescribed form including specific information about the consequences of “contracting out”. These notices are available here
The tenant must reply to the landlord’s warning notice making a declaration which acknowledges they received it and have fully understood the notice. They thereby agree to waive their rights under the LTA 195. There are two types of declarations:
Where the tenant was given plenty of notice (more than 14 days) they can reply with a Simple Declaration, a document signed without witness, whereas a Statutory Declaration, formal declaration made before an independent solicitor or commissioner for oaths, is required if the tenant is given less than 14 days’ notice.
Secondly, the lease must include specific reference to the notice and the tenant’s declaration. The clause must explicitly state that the lease is excluded from the Security of Tenure provisions of the 1954 Act.
Landlords considering letting commercial property should always consult a solicitor with experience of commercial property leases.
See also – Landlord and Tenant Act 1954
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