A rare chance to shape England and Wales commercial property law for a generation

On 16 June 2026, the Law Commission published two consultation papers proposing far-reaching changes to commercial leasehold law in England and Wales. Billed as once-in-a-generation reforms, the package is intended to produce a legal framework that genuinely serves the needs of commercial occupiers, from high street retailers and restaurant operators, to offices, industrial and logistics tenants.

For anyone involved in commercial property, these consultations deserve close attention. If enacted, these reforms could reshape day-to-day leasing practice in significant ways. 

Why is reform needed?

There has long been a sense that today’s commercial property market is being held back by legislation that no longer reflects how landlords and tenants actually do business. Unnecessary procedural friction, outdated rules and legal uncertainty have accumulated over decades, imposing real costs in terms of time, money and opportunity on parties across the market. 

In the two decades since the Landlord and Tenant Act 1954 (the “1954 Act”) was last substantially amended, the commercial property landscape has been transformed. Digital commerce has fundamentally altered the retail and services sectors; the global financial crisis of 2008 and the Covid-19 pandemic each put occupier markets under severe strain; and pressure to improve the environmental performance of buildings has reshaped what landlords and tenants expect from a lease. Against that backdrop, a statute widely regarded by practitioners as cumbersome, opaque and unfit for purpose is an obstacle the market can ill afford.

Elsewhere, statutory protections devised for residential tenants in the 1980s and 1990s - most notably the right of first refusal under the Landlord and Tenant Act 1987 (the “1987 Act”) - have spilled over into the commercial sphere in ways that were never intended. This has generated red tape and legal exposure for transactions that have nothing to do with the interests those provisions were designed to protect.

The Landlord and Tenant (Covenants) Act 1995 (the “1995 Act”) transformed lease liability by providing that, on assignment of a lease granted after it came into force, outgoing landlords and tenants are generally released from future covenant liability, passing those obligations to the assignee. It includes anti‑avoidance provisions to prevent attempts to circumvent those protections, but the anti-avoidance provisions have been interpreted by the courts in ways that block transactions presenting no genuine threat to those objectives, particularly intra-group restructurings.

What do the consultations cover?

1. The 1954 Act: Modernising Security of Tenure

Part 2 of the 1954 Act gives business tenants the right to renew their tenancies when they would otherwise come to an end. This right is commonly referred to as "security of tenure". 

This is the second consultation in the Law Commission’s project on this Act. The first consultation paper, published in November 2024, considered whether major structural reform of the 1954 Act was needed or whether it should be abolished entirely. Having analysed responses, the Commission provisionally concluded that there should be no change to the contracting-out model (namely, that it should remain) and that the duration threshold for excluding short-term tenancies from the 1954 Act's scope should be increased from 6 months, with a proposal to consult on raising it to 2 years.

With those structural questions settled, this second consultation paper drills down into how the 1954 Act should work in practice, with the shared goal of producing a statute that functions as a practical and fair tool for landlords and tenants alike.

Across 13 chapters, 67 questions are posed, with key proposals such as:

• Qualifying criteria – Taking most periodic tenancies outside the 1954 Act's ambit altogether, and increasing the minimum duration threshold for fixed-term tenancies (below which the 1954 Act does not apply) from 6 months to up to 2 years. There are detailed questions in the consultation addressing how the changes may apply to existing tenancies to ensure that tenants do not acquire, or lose, protection inadvertently.
• Contracting-out – Streamlining the existing opt-out mechanism (criticised for its procedural complexity and the costs and delays it imposes before a tenant can begin trading) by moving the landlord’s warning and tenant declaration into the lease itself. By removing the need for separate notices and statutory declarations, there is a reduced risk of inadvertent non-compliance and cuts the administrative burden on every new commercial letting. It also creates a cleaner record of the contracting-out agreement if either party assigns its interest, whilst paving the wave to digitise the entire process of granting a lease.
  A common issue arises where parties are bound to take a future lease but there is a delay before it is granted (e.g. a guarantor stepping in on tenant default). Current law requires contracting out before the agreement is made, but it is unclear whether such agreements can be assigned with that status preserved. The Law Commission proposes instead that prescribed wording is included in the agreement, with the contracting-out process taking place on grant of the lease. This would bind all parties—and successors—to contract out on completion. If the wording is omitted, the lease may still be contracted out, but no party can require it.
• Terms of renewal - Revisiting the court's approach to setting terms on a contested renewal, including whether judges should be given greater flexibility to reflect the environmental performance of premises.
• Rent – Empowering the courts to order a renewal tenancy on a turnover-rent basis. This would be a significant development given the prevalence of such structures in the current market and the shift in rent review structures once the upwards-only rent review ban comes into force. Proposals to simplify the interim rent regime are also tabled.
• Ground F – Re-evaluating the redevelopment ground of opposition in light of contemporary construction practices and the growing importance of the Minimum Energy Efficiency Standards (“MEES”) regime (for the recent developments on MEES, see our blog post).This is an area of increasing practical relevance for landlords seeking to redevelop older stock.
  The consultation also asks whether the landlord’s motive/purpose behind its proposed works should remain a relevant factor post the Supreme Court's landmark judgment in S Franses Ltd v The Cavendish Hotel (London) Ltd [2018]. 
• Dispute resolution – Questioning whether the county court remains the right forum for lease renewal/termination proceedings, or whether cases (or categories of cases) would be better handled by a specialist tribunal or the High Court. The consultation also considers the potential for Alternative Dispute Resolution to reduce litigation.
  The ambition is to produce a statutory regime that parties actively choose to rely on rather than routinely avoid. It could, in due course, result in a practical and balanced framework in which contracting-out becomes the exception rather than the default, without restricting the freedom of landlords and tenants to reach their own commercial arrangements.

2. The 1995 Act: Removing Anti-Avoidance Barriers

The Law Commission is consulting on whether targeted amendments can introduce greater flexibility without weakening the 1995 Act's core protection for landlords and tenants.

Provisional proposals seek to facilitate:

• assignments and guarantees involving group companies;
• assignments and guarantees involving partnerships where the partners comprising the assignor and assignee are in substantially the same partnership; and
• assignments to guarantors.

These changes would address common restructuring scenarios that are currently blocked or require costly workarounds, which will be particularly relevant for corporate occupiers and their advisers.

3. The 1987 Act: First Refusal in Mixed-Use Buildings

The 1987 Act confers on residential tenants a right of first refusal where their landlord proposes to dispose of an interest in the building. In a mixed-use context, that right can be triggered by purely commercial lettings, such as a restaurant on the ground floor of a block of flats. This is a consequence that sits uneasily with the 1987 Act's purpose and has been a persistent source of difficulty for transactions involving mixed-use buildings, particularly as landlords risk committing a criminal offence if the regime isn’t followed.

The Law Commission's provisional position is that a letting of exclusively commercial premises should not engage the right of first refusal, with a limited carve-out for shared areas that serve an ancillary residential function. The objective is to draw a principled and workable line, one that preserves the statutory protection for residential leaseholders where it matters, without entangling commercial transactions in a regime to which they are ill-suited.

Reform of the 1987 Act would also bring welcome clarity to mixed-use transactions that have long been caught in an uncertain middle ground.

On the horizon: dilapidations, service charges and environmental law

A further phase of the Commercial Leasehold project (which is still in the pipeline) will examine a distinct but equally significant set of issues: the law on dilapidations, service charges, and the relationship between commercial lease obligations and the evolving environmental regulatory landscape.

Who should respond?

The consultation remains open until 16 September 2026, following which the Law Commission will consider responses and later publish a final report. 

We are working closely with the Law Reform Committee of the Property Litigation Association and RE:UK on their responses to the consultations.

These consultations are genuinely open to all those involved or engaged in the property sector. The Law Commission is seeking responses from across the commercial property community -   occupiers, landlords, investors, valuers, solicitors, barristers, the judiciary and academics. Those with interests in mixed-use buildings, and residential leaseholders' representative bodies, have a direct stake in the right of first refusal proposals and are encouraged to make their views known.

Developers and investors with mixed-use assets, corporate occupiers with multi-site portfolios, and anyone involved in negotiating, drafting or advising on commercial leases should all consider submitting a response. 

This is a rare opportunity to influence legislation that will govern commercial leasehold practice for a generation, so please get in touch if you would like to discuss further.