Potential reforms to ‘Security of Tenure’ 

The Law Commission has recently released its first consultation paper exploring potential reforms to the security of tenure provisions for business tenancies under Part II of the Landlord and Tenant Act 1954 (LTA 1954). This is a significant issue for business landlords and tenants, as security of tenure fundamentally influences their rights to renew leases and the terms on which these leases can be negotiated. With this reform in sight, it is crucial to understand what security of tenure is, how it works, and the implications of the proposed changes. 

What is Security of Tenure? 

Security of tenure is a legal concept that provides tenants with the right to continue occupying a property or to negotiate a renewal of their lease upon its expiration, subject to certain statutory provisions. Under Part II of the Landlord and Tenant Act 1954 (LTA 1954), this right applies to business tenancies, offering tenants stability and the ability to plan their operations with greater certainty. 

The LTA 1954 ensures that tenants of qualifying business leases can request a new lease unless the landlord can establish one of the statutory grounds for opposition. Common grounds include the landlord’s intention to redevelop the property, a desire to occupy it personally, or the tenant’s persistent breach of lease terms. If renewal is uncontested, the law provides a framework for negotiating the terms of the new lease or, if necessary, a process for the court to determine the terms. 

Landlords and tenants can, however, agree to exclude these rights before entering into a lease through a formal procedure called “contracting out”. This agreement removes the tenant’s statutory right to renewal, providing the landlord with greater flexibility at the end of the lease term. 

Challenges with the current framework 

While the LTA 1954 provides clear benefits for tenants, the system has often been criticised for its complexity and inefficiencies. Errors in the contracting-out process, such as inadequate documentation or procedural mistakes, can lead to unintended consequences, including tenants inadvertently gaining security of tenure. Such oversights can complicate lease terminations and create valuation uncertainties during property acquisitions and sales. 

The process for terminating leases or agreeing terms for renewals also lacks standardization. Decisions on lease renewals often rely on the specific facts of each case, leading to unpredictability for both landlords and tenants. Furthermore, evidential challenges in disputes over termination frequently result in delays and increased costs for all parties. 

The Law Commission’s consultation 

The Law Commission’s consultation seeks to address these issues by exploring fundamental reforms to the security of tenure framework for business tenancies. The initial consultation, open until February 19th 2025, invites feedback on four possible approaches: 

1. Mandatory security of tenure: Business tenants would always have security of tenure unless exempted by specific statutory provisions. 

1. No security of tenure: The concept would be abolished for new leases, removing statutory rights entirely. 

1. Contracting-in model: Tenants would not have automatic statutory rights unless explicitly agreed upon by both parties in the lease. 

1. Contracting-out model: Retaining the current system where security of tenure applies by default, but landlords and tenants can agree to exclude it through proper documentation. 

The consultation also seeks to determine whether different market segments, such as by location, asset type, or lease value, should be treated differently (eg, should retail be treated in the same way as offices?) Additionally, it explores how reforms might be phased in for existing leases and whether known issues with processes, such as contracting out or lease renewal negotiations, could be streamlined under the new regime (so, could lease renewals be dealt with using a menu of choices, rather than resorting to the courts? 

Implications for landlords and tenants 

These proposed reforms could have significant implications for the relationship between landlords and tenants. For landlords, mandatory security of tenure may reduce flexibility in managing their property portfolios, while the abolition of security of tenure could introduce risks for tenants reliant on lease renewals for business continuity and investment. 

Tenants, particularly small businesses, may benefit from enhanced stability under a mandatory security model but may face greater risks under a contracting-in system, where rights are not guaranteed without explicit agreement. Both parties would benefit from clearer, simplified processes to reduce uncertainty and prevent costly disputes. There has to be a good balance of interests. 

Next steps 

The Law Commission’s high-level consultation represents the first step in a broader reform process. A second, more technical consultation is expected to follow, focusing on the detailed implementation of the preferred approach. Stakeholders are encouraged to participate in the current consultation or the accompanying market survey on leasing practices and security of tenure to help shape the future framework. 

This process presents an opportunity to modernise and clarify an area of law that plays a pivotal role in the commercial property sector, balancing the interests of landlords and tenants while promoting efficiency and transparency. We will be encouraging all our clients to take part in the consultation.