Law Commission Consults on Changes to Business Tenancies
Author: Stephanie Pugh
Key Contact: Jennifer Butcher
Following our recent article, The Law Commission of England and Wales has now initiated its planned consultation on the future of business tenancies, specifically focusing on the statutory right of tenants to renew their leases under the Landlord and Tenant Act 1954. The consultation could lead to significant reforms in the framework governing business tenancies, and has the potential to reshape the commercial leasehold market. Read on to find out more about potential changes to business tenancies.
The focus of the consultation
At the heart of the discussion is the security of tenure, a statutory provision under the 1954 Act that grants business tenants the right to continue occupying their property and obtain a lease renewal when their tenancy expires (subject to certain limitations).
The Law Commission is asking, and in time will answer, fundamental questions:
1. Should business tenants continue to have this right?
2. If so, under what circumstances and with what modifications?
Models of security of tenure
The consultation paper outlines four potential models for security of tenure, each with distinct advantages and challenges:
- Abolishing security of tenure altogether
This Landlord friendly approach would assist in maximizing landlord flexibility, eliminate statutory processes, and reduces costs significantly.
However, this approach will leave tenants entirely reliant on market forces and landlord willingness, providing minimal protection.
- Contracting-in model
Here, the onus would be flipped onto ‘contracting in’ to the security provisions, as apposed to contracting out, overhauling the standard position of a tenant right to protection.
This approach will allow landlords and tenants to negotiate the security of tenure position, without the need to opt out, but could, in turn, limit a tenant’s bargaining power.
- Mandatory security of tenure:
This tenant friendly approach provides the highest level of tenant protection by making security of tenure automatic and non-negotiable.
However, it is highly restrictive to landlord flexibility and could discourage property rentals or lead to shorter-term leases.
- Sticking to the default position
Tenants maintain the right to renewal of their lease as is the current position, and a formal contracting out process is required should this not be agreeable.
Whilst this process provides tenant protection and an option for Landlords to reject the default position, the contracting out process has been criticised for being costly and time consuming.
Scope of the 1954 Act
In addition to examining the right to renew, the consultation considers whether the scope of the Act should be revised. Currently, the Act applies broadly to business tenancies, with certain exclusions (e.g., agricultural tenancies and leases under six months). The consultation invites views on whether these exclusions should be adjusted based on factors such as property type, location, or tenancy duration.
Implications for Wales
The consultation also covers Wales, where legislative power over tenancy laws could be devolved. Stakeholders in Wales are encouraged to share their unique perspectives on how the proposed reforms might affect them.
Next steps
The consultation is open until 19 February 2025, which marks the first phase of a two-part review. Feedback from stakeholders—including business tenants, landlords, legal professionals, and the public—will inform the Law Commission’s recommendations to the government. A second paper will explore the operational details of any proposed changes.
The outcome of this consultation could have far-reaching effects on the commercial leasehold market and the broader economy. With reforms potentially impacting millions of businesses across England and Wales.
If you have any questions about this issue, or for advice in connection with your business tenancy, contact our Property Litigation team.
