The Law Commission has recommended significant changes that will affect whether business leases have security of tenure and to the procedures to remove it.

Published: 3 July 2026
Authors: Michael Callaghan

Current law

Business tenants will usually have the protection of the Landlord and Tenant Act 1954 (the Act), including the right to renew their lease, unless the lease is contracted out of the security of tenure provisions in the Act.  Currently, only fixed-term leases can be contracted out.  All express or implied periodic tenancies (those that continue on a rolling basis until terminated by notice) are automatically within the protection of the Act.

Proposed changes to leases that have the protection of the Act

The Law Commission has recommended that all periodic tenancies granted to new tenants should fall outside the protection of the Act, or if this is not accepted, that these tenancies too should be capable of being contracted out.  A tenant who currently has a periodic tenancy with the protection of the Act who renews it would continue to have protection but could agree to contract out the renewed periodic tenancy.

Short-term leases

Currently a lease granted for a term of under six months does not have the protection of the Act unless the tenant (or a predecessor in title carrying out the same business) has been in occupation for at least 12 months.  If the tenant is granted two or more successive short-term leases of less than six months, it is unclear whether the aggregate terms determine whether the 12-month rule is satisfied.

The Law Commission has proposed two options for reforming the short-term lease rule.

Under the first option, a lease for a term of less than 24 months would not have the protection of the Act.  If the landlord and the tenant agree to grant a new lease, the 24-month rule would apply again but any previous period of occupation by the tenant counts.  If the total period of occupation at the end of the term of the new lease exceeds 24 months, the new lease will have the protection of the Act, unless it is contracted out.

Under the second option, a lease for a term of less than 12 months would not have the protection of the Act.  If the landlord and tenant agree to grant a new lease, the 12-month rule would apply again but without taking into account occupation under any previous leases.

The Law Commission has sought views on which option consultees prefer.

Excluded tenancies

Currently, certain types of tenancies, that might otherwise have the protection of the Act are excluded from protection based on the use of the premises.  This includes agricultural leases, mining leases, older leases of licenced premises and leases whose primary purposes is to grant “code rights” to electronic communications operators.  The Law Commission has concluded that there should be no additions or alterations to the list of “excluded use” leases.

Contracting out

Since 2003, the procedure to contract out a lease has consisted of a prescribed form of notice served by the landlord on the tenant and a declaration by the tenant in return to confirm that it has received the notice and understands the lease will not have the protection of the Act. This process must be completed before the tenant is contractually bound to accept the grant of the lease.

The Law Commission has acknowledged that this procedure is slow, bureaucratic, open to mistakes being made and largely a tick-box exercise.  It also creates issues for some leasehold transactions such as options to renew, enforcement of guarantor obligations and changes to the identity of landlord or tenant before the lease is granted.

The Law Commission recommends abolishing the current process and replacing it with a new procedure whereby contracting out takes place within the lease with prescribed wording appearing prominently.  Agreements for lease would also contain prescribed wording explaining that the future lease will be contracted out.  This would bind successors in title.

Unauthorised underleases

The tenant of a contracted-out lease can grant an underlease that has the protection of the Act.  When the lease comes to an end, the undertenant has the right to ask the landlord to renew its lease.  Whilst acknowledging that this might be unfair to landlords, the Law Commission has not recommended changing the position. It is usual for leases to provide that underleases must be contracted out.

Surrenders and agreements to surrender

A lease can be surrendered in whole or part without any statutory process of contracting out.  However, an agreement to surrender a protected lease must be contracted out otherwise the agreement is void.  The contracting out must take place between the current landlord and tenant of the lease.  It follows the same procedures as for contracting out a lease.

The Law Commission asks for consultees’ views on the issue and whether, if the procedures are retained, they should apply equally to surrenders of a lease as well so to agreements to surrender.

If the procedures are retained, it recommends that they should follow the same form as those proposed for contracting out leases. In addition, it recommends that the law be clarified to confirm that agreements to surrender part can be contracted out.

How will this affect investors and occupiers?

Nathan Rees, partner and co-head of Shoosmiths’ Investment group notes:

“From an investor perspective, the proposed move to simplify the contracting-out process is a positive and long overdue step. Embedding the process within the lease documentation should materially reduce execution risk and delay, particularly on time-sensitive transactions, while still preserving tenant awareness. The current regime is widely seen as overly procedural for what is, in most cases, a commercially agreed outcome.

Investors will also welcome the proposal to exclude periodic tenancies from security of tenure (or allow them to be contracted out), and the proposed increase from 6 months to 24 months before a tenancy is capable of acquiring security of tenure will, again, be seen as a positive proposal given that it is very rarely intended that such tenancies should benefit from security of tenure.”

From a Corporate Occupier perspective, Beth McArdle, partner and head of Shoosmiths’ national Corporate Occupier real estate team, comments:

“From a corporate occupier perspective, the Law Commission’s proposals represent a clear shift towards simplification in a regime that has long been seen as overly rigid and procedurally burdensome. The move to exclude (or more readily contract out of) protection for periodic tenancies and to broaden the scope of short-term lettings outside the Act reflects the modern corporate occupier’s need for agility.

However, this flexibility comes with a trade-off: a potential erosion of the certainty and renewal rights that many occupiers still rely on. The proposed overhaul of the contracting-out process is likely to be widely welcomed, removing a layer of administrative friction which is often viewed as a “tick-box” exercise and a source of technical risk in transactions. That said, greater reliance on wording within the lease itself will place increased emphasis on careful drafting and early-stage negotiation, particularly in agreements for lease. Overall, the reforms signal an evolution rather than a wholesale reset, but for corporate occupiers they underline the importance of being increasingly proactive in lease structuring, with a sharper focus on balancing flexibility against long-term security of tenure in their portfolio strategy

What next?

As ever, it is important to remember that these are for now, only consultations. Any views provided in response will form the basis of recommendations by the Law Commission. It will then be for Government to choose how to implement (or not) those recommendations in order to reform the landscape for commercial landlord and tenant relationships.