How the rules for commercial leases are set to change

After decades without change, the Landlord and Tenant Act 1954 is under review.

The Law Commission is looking closely at the process of excluding a tenant from having the benefit of security of tenure by its commercial lease of premises at the end of its contractual term. 

What is security of tenure?

Security of tenure is one of the most significant statutory rights in English property law.

It gives business tenants the right to renew their leases and stay in occupation unless a landlord can rely on a limited set of statutory grounds to oppose renewal.

Excluding that right, which is commonly referred to as contracting-out, shifts the balance towards the landlord, allowing flexibility for redevelopment or disposal.

However, the process for doing so has long been seen as unnecessarily technical and prone to costly mistakes.

The Law Commission’s reforms are designed to simplify that system and bring the 1954 Act into line with modern commercial practice.

Could a simpler route to contracting-out be on the way?

The last major change to the process came in June 2004 with the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

Before that, landlords who wanted to exclude a lease from security of tenure had to obtain a court order.

However, since the 2003 Order came into effect, landlords have instead been required to serve a warning notice and the tenant has had to sign a simple or statutory declaration to confirm they understand the exclusion.

A missing signature, incorrect date or out-of-sequence step can invalidate the exclusion, unintentionally giving the tenant renewal rights.

The Law Commission proposes to remove this procedural trap. Instead of serving notices and declarations, a prescribed endorsement within the lease itself would confirm both parties’ intention to contract out.

This change, should it work as intended, would make the process faster, clearer and less vulnerable to error, saving time and cost on every transaction.

Raising the short-term lease threshold

The short-term lease threshold could be in the firing line too, with suggestions to increase it.

At the moment, all commercial leases of six months or less automatically fall outside the 1954 Act.

The Commission believes this threshold is outdated and no longer reflects market reality.

In the 80s, I often saw leases for 20 to 25 years. Even in more recent decades, typical office leases might run six years or more.

These long-term leases used to be considered a symbol of stability, commitment and long-term planning, but today it seems to be a restriction modern businesses are keen to avoid.

Recent events, including the pandemic and the rise of hybrid working, have accelerated demand for shorter and more flexible leases, particularly in offices, serviced accommodation and some retail arrangements (pop-up shops).

For landlords and tenants entering a 12 or 18-month lease, having to complete the full contracting-out procedure is an unnecessary administrative burden.

The current proposal is to increase the exclusion threshold from six months to two years.

For landlords, it would mean that most short-term lettings would automatically fall outside security of tenure protection from the 1954 Act. This would simplify portfolio management, increase asset agility and remove the need for the contracting-out procedure on these leases.

For tenants, it would remove automatic renewal rights for short arrangements. Therefore, those seeking longer-term certainty would need to commit to leases beyond the new statutory threshold or negotiate clear renewal options from the outset.

Addressing the cost and delay of commercial lease renewals

The biggest drain on resources for both parties is the slow, expensive and sometimes antagonistic court process when a lease renewal is disputed, often due to disagreements over rent and lease terms.

The Law Commission’s second consultation is expected to recommend several targeted reforms, including:

1. A modern dispute forum – Renewal cases could move from the County Court to a faster, lower-cost alternative, possibly the First-tier Tribunal (Property Chamber), to address disputes over rent and lease terms.
2. Simpler statutory notices – The Section 25 (landlord) and Section 26 (tenant) notice process is notoriously technical. Simplification would reduce litigation caused by procedural slips, like technical errors in the documents.
3. Sustainability grounds for opposition – Although not confirmed, there is strong industry pressure to establish a clearer ground for opposition (such as Ground F) that would enable landlords to oppose renewals specifically for implementing Minimum Energy Efficiency Standards (MEES) or other sustainability-related retrofitting without incurring statutory compensation.

The ultimate goal of the Law Commission’s work is to focus on cutting expenses, avoiding delay and reducing the need for adversarial litigation for the commercial property market.

What is the current status of the commercial lease reforms?

The proposed changes are currently being developed and refined by the Law Commission of England and Wales as part of a two-stage review process.

Stage one concluded in June 2025 with provisional findings that security of tenure should remain, and that the short-term threshold should rise from six months to two years, subject to consultation.

Stage two is in preparation and will examine the technical detail, including how to replace the notice and declaration process, how a tribunal-based renewal system might work and how new grounds of opposition could be introduced.

The second consultation paper is expected later in 2025, although a confirmed date is yet to be announced.

What does the path to legislation look like?

Once the second consultation concludes, the Law Commission will publish its final report and recommendations to the Department for Levelling Up, Housing and Communities (DLUHC).

The recommendations will not change the law directly, as any reform would require a new Act of Parliament to amend Part 2 of the 1954 Act.

Law Commission proposals are often adopted, especially when they aim to simplify and modernise outdated legislation, as is the case here.

However, even with government support, that process takes time. Realistically, any changes to the commercial lease process won’t be seen before 2027.

In the meantime, the current rules remain in full effect, including the requirement for warning notices, statutory declarations, and the six-month automatic exclusion limit.

Landlords or tenants with questions about the 1954 Act, lease renewal, or related property matters should seek professional advice.

We’re happy to address any questions or concerns you may have, so please get in touch.