Our next article considering the Law Commission's consultation on the future of the Landlord and Tenant Act 1954 (the Act) tackles one of the more complex and frequently misunderstood aspects of the lease renewal process: interim rent.
Published: 4 August 2026
Authors: Elinor Sandbach
The Act currently contains detailed provisions dealing with interim rent. However, the Law Commission has concluded that the existing regime is difficult to understand, can produce uncertainty and tactical behaviour, and may lead to unfair outcomes both for landlords and tenants.
The consultation therefore considers whether the current approach should be replaced with a simpler system or retained in a more streamlined form.
Interim rent
When the contractual term of a lease protected by the Act expires, the tenant will often remain in occupation under a statutory continuation tenancy while the parties negotiate the terms of a renewal lease.
As a starting point, the terms of the existing lease continue during that continuation period. This means the tenant generally continues to pay rent at the level specified in the existing lease, even if market rental values have changed significantly since the lease was originally granted or the level of rent last reviewed.
Either party may, however, apply to the court for an interim rent determination.
The interim rent period starts from the earliest date that could have been specified in the relevant section 25 or section 26 notice, and continues until either:
1. the renewal tenancy is completed
2. the continuation tenancy comes to an end (for example, because the landlord successfully opposes renewal or the tenant decides not to proceed).
The current statutory regime is complicated because different valuation assumptions can apply depending on the circumstances. Where a renewal lease is ultimately granted, interim rent is often agreed to be the same as the rent payable under that new lease. However, the legislation contains a number of exceptions, particularly where:
1. rental values have changed substantially during the continuation period
2. the terms of the renewal lease differ from the existing tenancy
3. no renewal tenancy is ultimately granted.
Further complexity arises because the rent under the renewal tenancy is currently linked to the court's determination process. Legally, the valuation date is the commencement date of the renewal tenancy i.e. three months and three weeks after the court decides the provisions of the tenancy. Since future market conditions cannot be known, in practice the valuation date is generally treated as the date of the final hearing, even though that date may be itself uncertain (with final hearings sometimes listed for in excess of 12 months from the date of a Court application). This can create difficulties for valuers and encourage tactical delays in both rising and falling markets.
The Law Commission also highlights a practical cashflow issue. Until interim rent and renewal rent are agreed or determined, tenants continue to pay rent at the existing level. Once the final figures are established, a substantial balancing payment may become due from either landlord or tenant, potentially many months after the relevant period has ended.
Proposals for reform
Rather than abolishing interim rent altogether, the Law Commission has developed two alternative reform models.
Option A: fixed valuation and commencement dates
Under Option A, both the valuation date and commencement date for the renewal tenancy would be fixed by reference to the section 25 or section 26 notice.
The intention is to create a clearer and more predictable system in which the parties know from the outset the dates that will be used for valuation purposes.
If adopted, this approach would largely remove the need for separate interim rent provisions because the rent under the renewal tenancy would effectively apply from a date linked to the notice itself.
The principal advantages are greater certainty, simpler valuation evidence and reduced scope for tactical delay.
However, the proposal could create difficulties where the renewal tenancy differs materially from the existing tenancy. For example, if the renewal lease relates to only part of the premises, it may be unfair for the tenant to continue occupying the whole property during the continuation period while paying rent calculated by reference to the smaller demise.
The Law Commission therefore proposes that, in certain cases, adjustments could be made to reflect significant differences between the continuation tenancy and the renewal tenancy.
The consultation also seeks views on whether the notice-linked date should be:
- the earliest date that could have been specified in the notice (which, following the amendments introduced by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, is the date from which interim rent is currently payable); or
- the actual termination date specified in the notice.
This distinction could have significant strategic implications. The 2003 Order deliberately severed the link between interim rent and the date actually specified in the notice, instead tying interim rent to the earliest date that could have been specified. The intention was to prevent parties from obtaining a tactical advantage by choosing a longer notice period. Reverting to the actual termination date would risk reintroducing those tactical considerations, as parties may seek to influence both the valuation date and the commencement of any revised rent by controlling the timing of their notices.
Option B: retain interim rent but simplify it
Option B would preserve the current structure of the Act, keeping the commencement date and valuation date broadly unchanged, and with interim rent continuing to exist as a separate concept.
However, the basis on which interim rent is assessed would be substantially simplified.
Rather than the current array of different valuation exercises and exceptions, interim rent would be assessed by reference to the open market rent of a hypothetical tenancy on the same terms as the continuation tenancy.
This approach is simpler than the current statutory scheme, and avoids both bringing forward the lease renewal cycle and the need to account for differences between the continuation tenancy and the renewal tenancy.
However, it would not eliminate uncertainty around valuation dates and would continue to allow scope for tactical delay because the renewal rent would still be linked to the timing of the court process.
Application of interim rent in more complex scenarios
The consultation also examines how either option should work where circumstances do not fit the traditional lease renewal model.
For example, issues can arise where the rental model changes on renewal, such as a transition from a conventional rack rent to a turnover rent arrangement. The ability of the court to order a turnover rent is discussed in Chapter 7 of the Consultation and in our article here: Commercial leases: On what terms and rent can a lease be renewed?
The Law Commission recognises the practical difficulties of retrospectively calculating turnover-based rents for periods when tenants may have had no obligation to keep or provide the relevant trading data. Under Option A, the court could be given power to make an appropriate adjustment. Under Option B, interim rent would instead remain based on the rental model used in the original tenancy.
The consultation proposes a similar approach where no renewal tenancy is granted, suggesting that the rent should continue to be assessed using the same rental structure as the original lease.
The Law Commission also seeks views on whether parties should be able to apply for interim adjustments to rent during the continuation period and how balancing payments should be enforced once the final rents have been determined.
Comment
From a corporate occupier perspective, Elinor Sandbach, partner in the real estate litigation team, comments:
“From an occupier perspective, the strongest argument for reform is greater certainty. The current regime can leave occupiers carrying a significant contingent liability for many months while lease renewal proceedings progress, only for a substantial balancing payment to arise long after the relevant period has passed. That uncertainty can make budgeting and financial planning particularly challenging for businesses with large property portfolios.
Option A has obvious attractions because it creates a clear valuation framework from the outset and reduces the scope for tactical delay. However, fixing the valuation date at the notice stage also means that the parties are effectively pricing a lease before the terms have been finalised and, in some cases, before market conditions have fully evolved. In volatile occupational markets, a significant period may elapse between the service of a notice and completion of the renewal lease, creating a risk that the rent ultimately paid is detached from conditions prevailing at the point the new tenancy is actually granted.
Many occupiers may therefore see merit in the simplicity offered by Option B, which preserves the existing renewal timetable whilst streamlining the valuation exercise.”
Laurence Matthews, a Senior Associate in the real estate litigation team who acts for investors and developers, agrees:
“Option A gives both parties greater certainty from the outset, but the trade-off is that it could accelerate the lease renewal cycle. Fixing the valuation and commencement date at an earlier stage means that a lease that takes a year to negotiate may have already lost a substantial part of its term by completion, bringing the next renewal process into view much sooner. While parties may respond by agreeing longer lease terms, that will of itself affect value and, potentially, the new level of rent under the renewal lease."
This article forms part of our series examining the Law Commission's consultation on reform of the Landlord and Tenant Act 1954. Our separate article on Chapter 7 Part 1 considers the Law Commission's proposals regarding the assessment of rent under renewal tenancies.