Alongside its consultation on the Landlord and Tenant Act 1954, the Law Commission has launched a second one aimed at removing specific legal impediments to commercial lettings.

Published: 23 June 2026
Authors: Michael Callaghan

What is being considered?

The consultation (available here) poses 13 questions, with a particular focus on:

• the application of residential tenants’ rights of first refusal to commercial lettings in mixed-use buildings
• the extent to which the Landlord and Tenant (Covenants) Act 1995 (1995 Act) restricts otherwise legitimate commercial arrangements

The proposals are deliberately targeted rather than radical, focusing on discrete areas where the current law creates delay, cost and uncertainty in day-to-day transactions.

The consultation closes on 16 September 2026.

Commercial lettings in mixed-use buildings

Residential tenants in a mixed-use building may benefit from a right of first refusal under the Landlord and Tenant Act 1987 where the landlord proposes to dispose of the whole or part of the building.

Broadly, the right arises where more than 50% of the building is residential and at least 50% of the flats are held by qualifying residential tenants.

There is, however, longstanding uncertainty as to whether the grant of a lease of commercial space in such a building constitutes a “disposal” triggering these rights.

In practice, this creates a significant problem for landlords if the rights apply:

• the right of first refusal procedures must be followed before the commercial lease can be granted
• this can delay the transaction by at least two months
• failure to comply is a criminal offence

This is so even though, commercially, residential tenants are highly unlikely to seek to take on a commercial lease given the financial and practical commitments this would involve.

The Law Commission’s view is that, under the current law, disposals of premises that are used, or intended to be used, for commercial purposes are likely to be caught by rights of first refusal.  However, it considers that Parliament did not intend the right of first refusal to apply to such transactions. It therefore proposes:

• a specific statutory exemption for lettings of premises used, or intended to be used, solely for commercial purposes
• the exemption would not extend to shared areas

If implemented, this would remove a well-known source of delay and risk in mixed-use developments.

Reform of the 1995 Act

Under the 1995 Act, on assignment of a “new tenancy” (broadly one granted on or after 1 January 1996):

• the outgoing tenant and its guarantor are released from future liability under the lease
• the landlord’s main protection is an authorised guarantee agreement (AGA) given by the outgoing tenant
• wide-ranging anti-avoidance provisions invalidate arrangements designed to preserve liability outside this framework

Judicial interpretation of the anti-avoidance provisions has been notably strict. As a result:

• a guarantor of the outgoing tenant cannot act as guarantor for the next tenant
• an assignment of the lease to a guarantor is prohibited
• various commercially sensible restructuring arrangements are rendered void

The Law Commission does not propose to revisit the core policy of the 1995 Act. Instead, it suggests targeted reforms to address outcomes widely regarded as uncommercial, particularly in:

• group company transactions
• partnership arrangements involving joint tenants

It also seeks views on whether similar flexibility is needed in other commercial contexts (for example, franchising structures).

Corporate transactions

The Law Commission provisionally recommends that certain intra-group transactions involving the assignment of a lease should no longer be rendered void by the 1995 Act.

In particular arrangements to transfer lease liability that have been held unlawful by the courts would be permitted where they occur between group companies,  The definition of “group company” would follow section 42 of the Landlord and Tenant Act 1954.

To guard against abuse, it proposes that the group relationship must exist both at the date of the agreement for assignment and at completion.

This would introduce a degree of flexibility currently absent from the statutory regime.

Partnership transactions

The Law Commission identifies similar issues in the context of partnerships.

For example, where A and B are joint tenants, G is their guarantor and the lease is assigned to A and C, the continuation of the G’s liability as guarantor of A and C will be void under the current law.

The Law Commission suggests that more flexible arrangements should be permitted where the outgoing and incoming tenants are, in substance, the same business.  This would be satisfied where:

• the outgoing and incoming tenant groups are engaged in substantially the same business
• at least one partner is common to both

Other potential reforms

The Law Commission does not propose changes in areas where reform would affect both commercial and residential tenancies as this falls outside the scope of its current project that is limited to purely commercial transactions.

What does this mean in practice?

The proposals are best characterised as incremental but practical. If implemented, they would:

• remove a significant procedural burden and risk affecting commercial lettings in mixed-use buildings
• introduce a limited but useful degree of flexibility into the 1995 Act regime
• reduce the risk of transactions being inadvertently rendered void or delayed

Next steps

These proposals are at the consultation stage only. Responses will inform the Law Commission’s final recommendations, after which it will be for Government to decide whether (and how) to legislate.