Lawbite: Reform of business tenancies – interim statement released

Summary

The Law Commission has today (4 June 2025) issued an interim statement giving an indication of the direction of reform of the Landlord and Tenant Act 1954 (1954 Act).  

The Law Commission has provisionally concluded that the existing “contracting-out” model is the correct model, that there should be no change to which tenancies should be excluded from the protection of Part II of the 1954 Act, and, that the six-month minimum term threshold for protection should be increased (possibly up to two years). 

These provisional conclusions will provide the basis of the second consultation paper which is expected later this year, although no date has been given as yet. 

The progress of this Consultation is being closely monitored by investors, landlords and tenants of business property across England and Wales together with their professional advisers.

Security of Tenure

The 1954 Act gives business tenants a right to renew their tenancies on expiry of their existing tenancies, known as “security of tenure”.  This is an automatic right which applies to most business tenancies unless they are granted for a short term or the parties to the tenancy agree that they “contract out” of the right. The agreement to “contract out” needs to be reached before the tenancy is granted.

The Consultations

On 19 November 2025, the Law Commission published a consultation paper launching a wide-ranging review of Part II of the 1954 Act. This was the first of two consultation papers in this project, the second is awaited. 

Law Commission's provisional conclusions:

• Keep the “contracted-out” model?

The first consultation asked whether business tenants should still have security of tenure and, if so, should this remain a “contracted-out” (opt-out) option or should it, for example, be optional (opt-in).

The Law Commission has provisionally concluded that the existing “contracted-out” model should remain. This received the broadest support from consultees and arguments in favour of retaining this model were powerful. A number of consultees had also expressed concern that a change to the model would cause unwarranted disruption to the commercial leasehold market. 

• Who can benefit from security of tenure?

The Law Commission’s provisional view is that the existing list of excluded tenancies (i.e. tenancies that do not benefit from security of tenure) should remain unchanged. This list includes, for example, agricultural tenancies. 

• Exclude tenancies of up to six-months?

Currently, tenancies of up to six-months are excluded from the security of tenure protection in the 1954 Act.  Although consultees’ views were mixed, the Law Commission is of the view that this six-month minimum term threshold for protection should be increased.  In its second consultation paper, the Law Commission expects to consult on increasing the threshold to two years.

What's next?

The provisional conclusions reached by the Law Commission are not surprising given that in its first consultation paper it highlighted that it would look for significant evidence to justify departing from the existing “contracting-out” model before making any recommendation to do so.

With security of tenure likely to remain in place, there is now scope for modification of that right to bring it up to date with modern requirements and practice, taking into account other legislative frameworks and wider government priorities, such as the environmental agenda. 

The second stage of the consultation will, therefore, be the more instructive one when it comes to the actual direction reform could take. 

Using these provisional conclusions as its basis, the paper will  focus on the technical detail of how the 1954 Act might be reformed.  This could include potential reform to:

• the contracting-out procedure
• the forum in which disputes are heard (including use of alternative dispute resolution forums) 
• the landlord’s grounds to oppose renewal and the tenant’s right to statutory compensation 
• the terms, including rent, of a renewal lease, and
• any issues caused to parties by the “registration gap”

Timings

• The second consultation paper is awaited later this year, although no date has been confirmed as yet
• The Commission’s final recommendations for reform will be set out in a report, following the second consultation. Timings for this stage can vary significantly depending on the consultation
• The report will make recommendations but, of course, only Parliament can change the law, it will therefore be some time before landlords and tenants will feel the impact of this consultation
• In the meantime, the Law Commission have said that they will publish a compilation of the responses they received to the first consultation paper shortly
• Our LawBite on the First consultation paper: Wide ranging review of business tenancy renewal law is launched