The Law Commission’s consultation on modernising security of tenure reviews the current approach to determining the rent and “other terms” of a renewal tenancy and proposes changes for today’s commercial property market.

Published: 14 July 2026
Authors: Rachel Beard

New rent – setting the open market rent

If the landlord and tenant cannot agree the new rent, the court can determine the rent for which the premises “might reasonably be expected to be let in the open market by a willing lessor”.  The Law Commission does not propose any reform to the general approach in assessing the level of rent.

However, the consultation invites views on whether any reduction in rent in comparable lettings to reflect a rent-free fit out period should be considered when the court determines the new rent.  Suggestions include including an additional assumption that the premises are fitted out to the tenant’s requirements (to reflect reality) or to expressly disregard any fit-out rent-free period that might be granted to the hypothetical tenant.

New rent – changing rental model

The Law Commission also invites views on whether the court should have the power to switch rental models in the renewal lease from a fixed rent to a turnover rent, or vice versa.  It considers that the rack rent assumption is no longer fit for modern markets, especially for retail and leisure.

The Law Commission recommends that the court’s powers should be clarified and expanded to allow the court to set rent and lease structure based on what would be agreed in the open market letting of the premises but adapted for an ongoing business, existing occupation and fairness between the parties.  The rental model should not change simply because a different model is commonplace in the market.  There should be a balancing exercise to determine whether a change is appropriate.

The Law Commission recommends that if the rental model changes, the court should be able to impose necessary supporting provisions by reference to tenancy provisions that are typically agreed in the open market and then tailor them to the premises and parties, including turnover reporting obligations, audit rights, user restrictions and alienation controls.

This would be a significant change in the basis on which a lease can be renewed.

“Other terms” – options for reform

Where a landlord and tenant cannot agree the terms of a renewal lease, the court may determine the disputed provisions having regard to the terms of the existing tenancy and “all relevant circumstances”.

In O'May v City of London Real Property Co Ltd [1983] 2 AC 726, the House of Lords directed that a court should start with the existing lease, with the burden on the party seeking a change to demonstrate that it is justified by “essential fairness”. The court also considers the protective purpose of the 1954 Act and the tenant’s bargaining position.

The Law Commission recognises that commercial lease drafting continues to evolve. The emergence of pandemic-related drafting and the growing use of green lease clauses illustrate how new issues can arise that were not contemplated when many existing leases were granted.  The consultation considers four possibilities for reform:

• retain the existing law

The Law Commission acknowledges that the current approach is embedded in the existing commercial leasehold market. Its view is that the current position is resilient and widely understood. However, the Commission acknowledges the criticism of the current law, that it lacks certainty of outcome when a case proceeds to court.

• codifying existing principles

The terms of the renewal lease would be determined by a court under a new statutory test, based on the existing law. Codifying the case law could improve clarity but the Law Commission considers that any statutory wording would need to remain high level and may simply generate new disputes about interpretation.

• a market-based approach

Under this model, renewal lease terms would be based on terms typically agreed in the market at the time of renewal. While this mirrors the approach used for determining the new rent to be paid by the tenant, the Law Commission highlights practical difficulties in identifying market-standard provisions and concerns about increased cost and litigation.

• a “guided” or “presumptive” approach

This option would retain the current framework but would require a court to have regard to one or more factors or to presume a particular type of term should be included. For example, the Law Commission explored whether the 1954 Act should require courts to consider specified factors, such as the MEES regime, or presume the inclusion of certain modern lease provisions, such as pandemic clauses, when determining renewal lease terms.

“Other terms” – recommended approach

The Law Commission’s conclusion is that the current law has not proved problematic enough to justify reform, particularly in the light of its consideration of other options. It is possible under O’May principles to introduce new terms to leases where it is fair to do so. Therefore, it proposes that the current law as to determination of “other terms” is retained.

However, the Law Commission recognises that the existing law may not go far enough in enabling leases to evolve to accommodate modern environmental concerns. It proposes a “guided approach to environmental terms” where a provision would be included in the 1954 Act to require the court to consider environmental matters when exercising its discretion to settle disputes over the other terms of a renewal tenancy.

Comment

From a corporate occupier perspective, Elinor Sandbach, partner in the real estate litigation team, comments:

“From an occupier perspective, the Law Commission’s consultation highlights the tension between ensuring lease renewals reflect modern market realities and preserving the certainty that businesses need to invest and operate with confidence. While greater flexibility around rent assumptions, fit-out incentives and alternative rental models may better reflect how space is let in today’s market, occupiers will be concerned about increased complexity, cost and uncertainty if renewal terms become more heavily influenced by current market practice.

The decision to retain the established approach to “other terms” is therefore welcome, helping to protect tenants from wholesale changes to their existing bargain, while the proposed focus on environmental considerations recognises the growing importance of sustainability obligations in commercial leasing. Overall, the challenge will be striking the right balance between modernisation and maintaining the security and predictability that underpin business tenancy renewals.”

James Speed, partner in the real estate team notes from an investment perspective:

Institutional and international investors are attracted to the commercial property investment market within England and Wales by its relative certainty and maturity.  In a world of rising inflation, bond yields and interest rates, investors will welcome the Law Commission’s conclusion that “if it ain’t broke, don’t fix it”

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.