Business Tenancies in the Spotlight: The 1954 Act Under Review

June 3, 2025

On 19 November 2024, the Law Commission published its first consultation paper on Part 2 of the Landlord and Tenant Act 1954 (“1954 Act”) which governs the renewal rights of business tenancies in England and Wales. The review represents the first substantive reassessment of this area of law in over 20 years and seeks to determine whether and in what circumstances business tenants should have security of tenure and whether the 1954 Act continues to meet the needs of commercial landlord and tenants.

What is the current Law:

Most tenancies in England and Wales benefit from security of tenure under current legislation, unless the lease has been contracted out of the Act or falls within a statutory exemption. This entitles qualifying tenants to a statutory right to renew their lease on similar terms at the end of the contractual term, unless the landlord can successfully oppose renewal on one of the limited grounds specified in the Act. Such grounds include, for example, the landlord’s intention to occupy the premises or to redevelop the property.

Where the parties wish to contract out of these renewal rights, the Act prescribes a specific procedure. The landlord must serve a formal warning notice prior to the lease being granted and the tenant must respond by completing either:

  • A simple declaration (if executed more than 14 days before the lease commencement date); or
  • A statutory declaration
What are the proposed models for reform:

The Law Commission has proposed four potential models for security of tenure as outlined below:

1. Mandatory Security of Tenure – Under this model, statutory renewal rights would apply automatically to all commercial leases with no option for contracting out. This could provide tenants with maximum protection and greater business continuity but could significantly reduce flexibility for landlords and may have the effect of landlords seeking ways to avoid security of tenure.

2. No security of tenure – This model would remove statutory renewal rights altogether, allowing lease terms to be governed by contractual negotiation. However, it may offer limited protection to tenants, particularly smaller businesses that may be unable to negotiate favourable renewal terms or that rely on longer-term security of premises.

3. Contracting in – Under this model the default position will be that Tenants will not have security of tenure but will have the option to opt in. This approach could offer more flexibility and decrease the time and cost of the current scheme. However, it would also reduce the level of protection for tenants as security of tenure would no longer be the default position, making it essential for tenants to be aware of the need to expressly opt in to these protections.

4. Maintain the current system – Under this model, the 1954 Act would remain broadly unchanged with security of tenure applying by default but subject to the parties’ ability to contract out via the existing statutory procedures. This would maintain the current balance between flexibility and protection, although it would not address longstanding concerns about the complexity and procedural formality of the scheme.

Further considerations within the consultation

In addition to these four models, the Law Commission has invited views on several related issues, including:

  • Whether certain types of tenancy, such as shorter tenancies or those below a specified rental threshold, should be excluded from the 1954 Act;
  • Whether the statutory grounds for opposing lease renewal should be reformed, particularly in light of changing patterns of property use;
  • Whether the current procedures for contracting out are unnecessarily complex and could be replaced with a more streamlined approach;
  • How to reduce the cost, delay, and uncertainty often associated with disputes, including possible alternatives to dispute resolution.
Why the change now:

The last major review of the 1954 Act took place over 20 years ago. Since then, the commercial property market has undergone significant change. Notably:

  • The COVID-19 pandemic accelerated shifts towards remote and hybrid working models;
  • Businesses increasingly seek flexible and short-term occupancy;
  • Greater emphasis is being placed on ESG (environmental, social and governance) factors, which influence lease terms and property use; and
  • There is continued pressure on both landlords and tenants arising from economic volatility, including rising costs and interest rates.
Timeline:

The consultation period closed on 19 February 2025. The Law Commission will now consider the responses received and is expected to publish a second consultation paper in due course. This next stage is likely to address in more detail whether the grounds for opposing a renewal should be amended, whether the contracting out process should be simplified or replaced, and how the overall cost and complexity of lease renewal disputes might be reduced.

Following this second stage, the Law Commission will make its final recommendations to the Government, but it could be some years before we see any changes.

To discuss the content of this article, or for further advice on the issues raised, please contact us to speak to a member of our Real Estate Team.

Rachel Duncan
Partner, Real Estate
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Charlotte Harris
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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