Key takeaways
Key legislation undergoing reform
The Law Commission is considering how to modernise and improve three major landlord and tenant Acts.
Security of tenure largely unchanged
The existing 1954 Act model stays, but hopefully with simplified renewal processes and a streamlined contracting-out procedure.
Greater flexibility for commercial leases
1995 and 1987 Act reforms aim to ease lease assignments within groups and reduce burdens on new commercial leases in mixed-use buildings.
Ahead of his visit to MIPIM next month, Darren Hamer (Head of our Manchester Real Estate team) continues his consideration of the big issues currently affecting the real estate sector, looking this week at a series of current and upcoming Law Commission consultations involving commercial landlord and tenant law.
Introduction
Three cornerstone statutes continue to shape the English leasehold system: the Landlord and Tenant Act 1954 (security of tenure for business tenants), the Landlord and Tenant (Covenants) Act 1995 (liability following assignment), and the Landlord and Tenant Act 1987 (rights of first refusal for qualifying residential tenants). Each is now the subject of active or anticipated reform via Law Commission consultations, the latter two as part of the Law Commission’s recently-announced 14th Programme of Law Reform, reflecting concerns that the existing frameworks are outdated, overly complex, and misaligned with modern commercial practice.
1. Landlord and Tenant Act 1954 – business tenancies and security of tenure
Current reform status
The Law Commission is conducting a comprehensive review of Part II of the 1954 Act following a referral by Government in March 2023. An interim statement published in June 2025 set out the Commission’s provisional conclusions, with a second, technical consultation promised in spring 2026.
Anticipated changes
Retention of the core security of tenure model
The Law Commission has provisionally concluded that the existing contracting-out model, whereby business tenants enjoy statutory protection unless the lease has been contracted-out of security of tenure, should be retained. Consultees broadly supported the current balance between landlord flexibility and tenant protection and expressed concern that wholesale reform would disrupt the commercial leasehold market. This conclusion is understandable because security of tenure and renewal rights are very important for tenants in terms of planned investment in properties and the significant fit-out costs that they incur when fitting-out properties for the purposes of their business.
Increase in the minimum term threshold
One of the most significant anticipated reforms is an increase in the minimum tenancy length required to attract statutory protection. The current six-month threshold is widely regarded as inappropriate for modern short-term lettings. The Law Commission has indicated support for increasing this threshold to two years. This may see more short-term leases granted, particularly when the proposed prohibition on upwards-only rent reviews is implemented.
Technical simplification and modernisation
Further reform is expected to focus on simplifying renewal procedures, reducing delay and cost, and ensuring the Act better reflects modern leasing practices, including sustainability obligations and flexible occupation models. This is to be welcomed, because the current process of constantly extending the deadline for a tenant to issue a court application to request a new lease wastes considerable time and money in legal costs that could be better deployed on the more expedient conclusion of the renewal lease itself. Hopefully the current over-engineered procedure for contracting-out of the statutory regime will also be streamlined and de-risked.
2. Landlord and Tenant (Covenants) Act 1995 – assignment and liability
Why reform is being considered
The 1995 Act replaced privity of contract (whereby tenants remained on the hook indefinitely, no matter how many times the lease was assigned) with a regime under which tenants are released from future liability on assignment, subject only to the ability for an outgoing tenant to give an Authorised Guarantee Agreement (AGA) guaranteeing their immediate assignee. While this addressed historic unfairness, the Act’s technical structure and wide anti-avoidance provisions have produced unintended consequences, particularly for corporate groups and restructurings.
Likely areas of reform
Greater flexibility for group structures
Reform is expected to permit greater flexibility for intra-group assignments, allowing leases to be transferred within corporate groups without breaching the Act, while maintaining appropriate landlord protection. Reorganisation of lease liabilities within corporate groups has been adversely frustrated by such anti-avoidance measures, with parent companies currently unable to guarantee consecutive tenants (even if they are all within the same group), whilst assignments to guarantors have been held to be void.
Clarification of AGAs and sub-guarantees
Case law has created complexity around AGAs and guarantors. It seems that an outgoing tenant’s guarantor cannot enter into the AGA to directly guarantee the assignee, but can give a sub-guarantee in respect of the outgoing tenant’s liabilities under its AGA. Reform is likely to clarify what forms of guarantee are permissible, reducing litigation risk and improving certainty. We are currently relying on case law in this area due to uncertainty with the provisions of the 1995 Act and clarification of the position will give market certainty.
3. Landlord and Tenant Act 1987 – rights of first refusal
Current problems with the 1987 Act
Part I of the 1987 Act gives qualifying tenants of flats a right of first refusal (RFR) on certain disposals by their landlord. While protective in principle, the regime is widely criticised as complex, inflexible and disproportionate, with criminal liability for non-compliance and ongoing uncertainty around its application to transactions involving mixed-use buildings that could arguably mean that a landlord has to issue statutory ‘section 5’ notices to the residential tenants and wait at least two months before it can grant a lease of commercial space in a mixed-use building, despite the fact that this was clearly not the 1987 Act’s intention.
Anticipated reform direction
Simplification or replacement of the RFR regime
Whilst the 14th Programme of Law Reform says it will only consider the 1987 Act insofar as it relates to commercial premises, it is be hoped that the Law Commission will consider more generally whether the right of first refusal should be simplified, substantially amended, or potentially removed, particularly given the availability of other enfranchisement and management rights.
Commercial property focus
It is hoped that reform of RFR makes similar provisions regarding the sale or letting of commercial space within a mixed-use building to those already in the 1987 Act excluding the letting of an individual flat, to remove any ambiguities and risk around the current legal position.
Reduction of criminal sanctions
There is broad support for replacing criminal liability with a more proportionate civil enforcement regime.
Conclusion
The anticipated reforms to the Landlord and Tenant Act 1954, the Landlord and Tenant (Covenants) Act 1995 and the Landlord and Tenant Act 1987 point toward incremental modernisation rather than radical change. Core tenant protections are expected to remain, but with greater flexibility, clarity and commercial realism. For landlords, tenants and lenders, careful monitoring of the Law Commission’s forthcoming consultations in 2026 (and beyond) will be essential, particularly for transactions that may straddle existing and reformed regimes.
HD at MIPIM
We’re counting down to Cannes and can’t wait to be back at MIPIM 2026!
An 11-strong team from across our UK offices will be attending, bringing together expertise in real estate, real estate finance, banking, construction and private client law.
We’d love to catch up with fellow professionals, have some great conversations and see how our legal expertise can help support your strategic goals. If you’re heading to MIPIM too, do get in touch.
