After a much-anticipated wait, the Law Commission has published its second consultation on Part 2 of the Landlord and Tenant Act 1954 (“the Act”).
The first consultation paper published in November 2024 examined how the Act might be reformed for a modern commercial leasehold market and considered four possible models for reforming security of tenure, as well as raising questions as to whether the types of businesses that benefit from security of tenure are correct.
We discussed each of the four models in our previous article (Landlord and Tenant Act 1954 – Is This the End of Security of Tenure?) which included: no security of tenure, a contracting in model, the current contracting out model and mandatory security of tenure.
The Law Commission published an interim statement in June 2025 discussing its provisional conclusion from the first consultation. The suggestion at that stage was that the current contracting out model should remain, but that the threshold for excluded short-term tenancies under the Act should be increased (currently six months).
In its second consultation, the Law Commission presents several proposals on various parts of the Act and seeks views as to how these provisions can now best work in practice for the modern commercial landlord and leaseholder.
Proposals
Qualifying criteria
As highlighted above, one proposal is to increase the threshold for excluded short-term tenancies. The Law Commission has considered this in the context of both new and renewal tenancies, as well as periodic and fixed term tenancies.
The Law Commission is considering limiting protection to new fixed-term tenancies exceeding one or two years and excluding all new periodic tenancies. Existing protected tenancies would remain protected on renewal, while renewed unprotected tenancies may only qualify if they are fixed term and meet certain criteria.
If adopted, these changes could significantly reduce the number of shorter-term business occupancies that benefit from statutory protection, potentially creating greater certainty for landlords while reducing protection for some tenants.
Contracting out
The current process for contracting out of security of tenure is often regarded as administratively burdensome. The Law Commission therefore proposes a new process that would be incorporated into the tenancy agreement itself.
In practice, the Law Commission proposes that a prescribed warning notice should now be included within the tenancy agreement, rather than being provided separately. It also proposes replacing statutory declarations with a signed statement confirming that the tenant understands the effect of contracting out.
For landlords and their advisers, this could represent one of the most practical reforms in the consultation, streamlining a process that is often viewed as unnecessarily technical.
Surrender
Under the current Act, an agreement to surrender a protected business tenancy is generally void unless the statutory requirements have been followed. Similar to the contracting-out process, these requirements can create additional administration and costs.
The Law Commission is consulting on three options:
- Abolishing the current validation process altogether, so that agreements to surrender protected tenancies would be valid without any specific 1954 Act formalities.
- Retaining a validation process, but simplifying it to mirror the proposed new contracting-out procedure. This would involve including prescribed wording within the surrender agreement itself, rather than requiring separate warning notices and declarations beforehand.
- Retaining the validation process and extending it to both actual surrenders and agreements to surrender.
The Law Commission is also reviewing section 28 of the Act, which excludes the Act’s protection in certain agreements for future tenancies. It is seeking views on whether the provision still serves a useful purpose, what issues it may be causing, and whether it should be reformed or repealed.
Renewal tenancy
The consultation addresses concerns arising from the leading decision in O’May v City of London Real Property Co Ltd and whether the current approach continues to provide sufficient flexibility for modern commercial lease renewals.
The Law Commission is considering reforming the O’May approach to lease renewals by either adopting a market-based approach, reflecting terms commonly agreed in the market, or a guided approach, where courts determine terms by reference to specified factors or presumptions.
The consultation also considers how rent should be assessed when a tenancy is renewed or continues beyond its contractual term.
It is considering whether protected tenants should benefit from a rent-free fit-out period, and how the law could be clarified to achieve that outcome. The Law Commission also asks whether, and how, courts should determine the inclusion of turnover rents and other alternative rental models in renewal tenancies.
There is also consideration of interim rent, with consultees invited to advise which of the following two options they prefer:
Option A: one fixed valuation date, with the renewal tenancy being backdated to commence on that date. This would largely remove the need for any rules about interim rent and aim to bring greater certainty.
Option B: retain two valuation dates (one for interim rent, and one for the renewal tenancy) but simplify the basis on which interim rent is assessed. This would preserve the structure of the current law, but make valuation easier to understand and operate, and remove the inappropriate outcomes under the current law.
Grounds of opposition
The Law Commission do not propose any changes to Grounds (a) to (e) but seek views on whether they are working effectively.
Whereas, Grounds (f) (redevelopment) and (g) (landlord own occupation) have been placed under review.
The Law Commission is consulting on three options to modernise Ground (f): expanding the existing redevelopment works to include modern construction methods, doing so while removing any requirement to consider the landlord’s motive, or replacing the current categories altogether with a single “substantial works” test.
The Law Commission is also considering whether Ground (g) should be reformed to allow landlords to carry out alterations before occupying a property and potentially operate the same type of business as the tenant, while proposing no changes where only part of the property is required.
The consultation also reviews whether compensation should continue to be based on rateable value or rent, whether long-term tenants should receive enhanced compensation, and whether compensation can be excluded for shorter occupancies through a clear formal process.
The current view is that compensation should continue to be calculated using a simple and straightforward method, but the consultation is asking for views on the best way to do this.
Dispute resolution process
The consultation invites comment as to whether lease renewal disputes should continue to be heard in the County Court, be transferred wholly or partly to the Tribunal or High Court or make greater use of alternative dispute resolution to reduce costs and delays.
Identity of the parties
The Law Commission does not currently consider reform necessary but is seeking views on problems caused by registration gap issues when serving notices, whether any changes are desirable, and whether equitable owners should be brought within the scope of the Act.
Opposing renewal
The Law Commission is considering whether notices should be capable of being served on tenants who are no longer in occupation, whether all protected tenants should be entitled to serve a section 26 request, and whether limits should be placed on a tenant’s ability to give notice.
Other points
- Occupation requirement: Consideration of whether the current occupation requirement presents difficulties for certain business tenants.
- Large-scale redevelopment: Issues arising in relation to large-scale or complex redevelopment projects.
- MEES interaction: The practical impact of the interaction between the MEES regime and security of tenure under the 1954 Act.
- Further reform: Potential reforms to the 1954 Act not addressed in the Consultation Paper.
- Welsh considerations: Issues specific to the application or reform of the Act in Wales.
- Transitional arrangements: Appropriate arrangements for existing protected tenancies following implementation of any reforms.
- Impact assessment: The financial and practical implications of the proposed reforms.
Next steps
Change is required by both landlords and tenants. The proposals raised by the Commission appear to go some way in addressing concerns raised by simplifying the procedures under the Act to compliment a fast-paced modern market. The Law Commission is clear taking heed of the outdated system, but much remains to be seen with most of the detail yet to be clarified by the responses. We therefore strongly encourage any interested stakeholders to provide their views in the consultation.
The Law Commission invites all interested parties to provide online responses to the paper by 16 September 2026.
For more information, please send an enquiry or contact a member of our property litigation team directly.
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