Major Commercial Leasehold Law Reforms: Law Commission’s Business Tenancies and Commercial Leasehold Projects

July 9, 2026

The Law Commission has recently published two consultation papers as part of its review of commercial landlord and tenant law: one relating to its Business Tenancies “Modernising Security of Tenure” project and the other to its Commercial Leasehold “Overcoming Barriers to Transactions” project.

Together, these consultations consider whether the current legal framework governing commercial tenancies remains fit for purpose in a modern commercial property market. In particular, the Law Commission is examining whether aspects of the existing regime, much of which is founded on legislation several decades old, continue to meet the needs of landlords, tenants and investors. The proposals seek to modernise and simplify the law, ensuring that it better reflects contemporary commercial leasing practices and provides a framework that is more adaptable to the evolving commercial leasehold market.

Security of Tenure Reforms: Proposed Changes to Protected Business Tenancies

One of the key issues being considered as part of the Business Tenancies consultation is the scope of the security of tenure protections available under Part 2 of the Landlord and Tenant Act 1954. At present, tenants of business leases granted for a term of six months or less are generally excluded from the Act’s protection, meaning they do not benefit from the statutory right to remain in occupation at the end of the contractual term or to apply for the grant of a new tenancy. The Law Commission is reviewing and has published an interim statement setting out its provisional conclusions, which include increasing the exclusion threshold from six months to two years. The Law Commission is also consulting on excluding the majority of periodic tenancies from this protection as well. Tenancies at Will and Licences to Occupy appear to be unaffected and will continue to be unprotected and not benefit from the statutory rights to remain in occupation or to seek a renewal lease.

Contracting Out Business Tenancies

Another significant area under review is the current “contracting-out” procedure, which allows landlords and tenants to agree that a business tenancy will not benefit from the security of tenure provisions of the Landlord and Tenant Act 1954. Under the existing regime, a landlord must serve a formal warning notice and the tenant provides a completed statutory declaration confirming that they have opted out of the above protection. The Law Commission is considering whether these requirements can be reduced and the process simplified, particularly for routine commercial lettings. The consultation therefore explores potentially incorporating the necessary confirmations directly within the lease documentation itself. The aim is to retain appropriate safeguards for tenants while making the contracting-out process more straightforward, efficient and better suited to modern commercial leasing practice.

Renewal Lease Terms Under the Landlord and Tenant Act 1954: Key Proposed Reforms

Rather than the court determining the other terms of a renewal tenancy with reference to the provisions of the original tenancy and “all relevant circumstances”, the Commission has proposed that the courts should focus on what tenants and landlords typically agree in the market. Alternatively, it proposes that the current law will be supplemented with a court direction which determines the other terms of the renewal tenancy by reference to specified factors, or that the court presumes that a particular type of term should be included.

The Commission has also suggested that environmental matters should be considered when courts determine renewal lease terms. The courts would either need to have regard to the Minimum Energy Efficiency Standards regime or environmental and sustainability concerns more generally.

The Commission has considered whether tenants under protected renewal tenancies should benefit from a rent-free fit-out period.

The consultation also looks at whether there should be changes to the inclusion of turnover rents (and other rental models) in renewal tenancies, including whether turnover rents can be imposed on renewal or what happens when the rental model is changed to or from a turnover rent.

It is proposed that interim rent payable during the continuation of a tenancy will be calculated by reference to either one fixed valuation date (with the renewal tenancy being backdated to commence on that date) or two valuation dates (that is, an expiry date of six months for the rent payable during the continuation period and then the commencement of the renewal tenancy for the rent payable under the renewal tenancy).

Landlord Grounds for Opposing Business Tenancy Renewals

“Ground F” could be amended to expand the categories of work on which a landlord can rely to oppose a renewal, including modern construction methods (such as retrofitting and refurbishment) and works undertaken for environmental purposes. The other option would be to replace the categories with a general test based on whether the landlord intends to undertake substantial works.

“Ground G” may also be amended so that landlords can alter the property before occupying part of it, but may not benefit from the tenant’s goodwill if they occupy part and carry on the same business as the tenant.

Compensation for Tenants Following Opposition to Lease Renewal

Where a renewal tenancy is opposed by a landlord under Grounds E, F or G, the tenant will be entitled to compensation. The Commission is considering whether such compensation should be measured by reference to the rent payable under the tenancy (instead of the rateable value), whether there should be stepped bands so that compensation increases in accordance with the length of the tenant’s occupation, and also whether the threshold by which compensation can be excluded (currently 5 years’ occupation) should be increased or decreased.

Right of First Refusal Reforms for Mixed-Use Commercial and Residential Properties

As part of its Commercial Leasehold “Overcoming Barriers to Transactions” project, the Law Commission is also considering reforms to the right of first refusal regime under the Landlord and Tenant Act 1987. One issue under review is whether the statutory right of first refusal should apply where a landlord disposes or grants a lease of premises that form part of a mixed-use building, but where the transaction relates solely to the building’s commercial parts. The Law Commission notes that residential tenants do not usually wish to take the commercial parts, and the current regime can create complexity and a burdensome process for mixed-use properties. It is therefore exploring whether these transactions should be excluded from the right of first refusal provisions. The objective is to reduce regulatory burdens on purely commercial transactions while ensuring that residential leaseholders continue to receive appropriate protection where their interests are directly affected.

Commercial Lease Assignments and Guarantees: Greater Flexibility for Businesses

Lastly, the Law Commission is also considering whether the current restrictions on assignments and guarantees continue to reflect modern business structures and commercial realities. In particular, the consultation examines whether tenants should be given greater flexibility to facilitate transactions within corporate groups, including assignments to group companies, transfers involving partnerships and assignments directly to their guarantors. The review recognises that businesses frequently reorganise their structures for operational, tax or commercial reasons and that the existing rules can create expensive and time-consuming barriers to legitimate intra-group and related-party transactions. The Law Commission is therefore exploring whether more flexibility can be granted to tenants to exercise the above.

What the Proposed Commercial Leasehold Reforms Mean for Landlords and Tenants

Overall, the Law Commission’s consultations and interim proposals represent a significant opportunity to modernise the commercial landlord and tenant legislation, with the proposed reforms seeking to create a more streamlined, flexible and commercially practical framework that better reflects the realities of the modern leasehold market while maintaining appropriate protections for landlords and tenants.

Both current and future commercial landlords and tenants should carefully monitor the two projects and Herrington Carmichael will continue to track and advise landlords and tenants on the potential impact of these reforms. Please contact our Real Estate team if you would like help with navigating these legislative changes or require any commercial property legal representation.

Rachel Duncan
Partner, Real Estate
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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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