Commercial Lease Renewal UK: 1954 Act Rights & Process

At a glance

• The right to renew comes from Part II of the Landlord and Tenant Act 1954. Section 24 lets a qualifying business tenant apply to court for a new tenancy once formal notice has been given — unless the lease was validly "contracted out" under section 38A.
• Two routes start the process: a landlord's section 25 notice or a tenant's section 26 request. Only one can be used, and both must specify a date between six and twelve months ahead.
• A landlord can only oppose renewal on the seven grounds in section 30(1) — ranging from tenant disrepair and rent arrears to the landlord's own redevelopment or occupation plans.
• Compensation under section 37 is payable only where opposition rests solely on the "no-fault" grounds — sub-letting economics (e), demolition/reconstruction (f), or landlord's own occupation (g) — not on the fault-based grounds (a) to (d).
• Contracting out (section 38A) removes security of tenure entirely, but only if the landlord's warning notice and the tenant's declaration were done correctly before the lease was signed.
• Holding over: if you have security of tenure and proper notice has been served, section 24(1) keeps the tenancy running on its existing terms until renewal is agreed or the court decides.
• Reform is under consultation, not yet law. The Law Commission's second consultation paper (16 June 2026, open until 16 September 2026) proposes modernising the Act's mechanics — nothing has changed yet, and any change requires Government decision and separate legislation.

What security of tenure means under the 1954 Act

A commercial lease renewal is the process of putting a new lease in place once an existing business tenancy has expired or is approaching expiry. In England and Wales, most business tenancies fall within the protection of Part II of the Landlord and Tenant Act 1954, which gives qualifying tenants security of tenure — the statutory right to apply for a new tenancy rather than simply being told to leave when the contractual term ends.

Under section 24, a tenancy to which Part II applies doesn't come to an end unless terminated in accordance with the Act, and either party can apply to the court for a new tenancy once the landlord has given a section 25 notice or the tenant has made a section 26 request. This is the legal mechanism, not just good practice — it's why the notice procedure matters so much.

Some leases are contracted out of this protection at the outset under section 38A (see below), meaning the tenant has no automatic right to renew and must negotiate from scratch, on whatever terms the landlord is willing to offer.

A renewal isn't just a rubber stamp even where security of tenure applies. It's a fresh commercial negotiation where rent, term length, repair obligations, break clauses and permitted use can all change. Getting the terms right matters because you'll be living with them for years.

The two routes into renewal: landlord's notice or tenant's request

The 1954 Act gives either party the power to start the formal renewal process — but not both at once. Under section 26(4), once one side has served their notice, the other cannot also serve theirs.

The landlord's section 25 notice

Under section 25, the landlord can serve a notice specifying a termination date. The notice:

• Must be given not more than twelve nor less than six months before the date of termination it specifies (section 25(2)).
• Must state whether the landlord opposes the grant of a new tenancy (section 25(6)).
• If opposed, must specify one or more of the grounds in section 30(1) (section 25(7)).
• If not opposed, must set out the landlord's proposals for the property, rent, and other terms of the new tenancy (section 25(8)).

The tenant's section 26 request

Under section 26, a tenant with a fixed term of more than one year can instead take the initiative and request a new tenancy. The request:

• Must propose a start date for the new tenancy not more than twelve nor less than six months after the request is made, and not earlier than the date the current tenancy would otherwise end (section 26(2)).
• Must set out the tenant's own proposals for the property, rent, and other terms (section 26(3)).
• Triggers a two-month window in which the landlord may serve a counter-notice opposing the request on stated section 30(1) grounds (section 26(6)).

Whichever route is used, the same core protections and grounds apply. What matters practically is timing: miss the six-to-twelve-month window, or fail to state opposition and grounds correctly, and the notice may not have effect.

Grounds on which a landlord can oppose renewal

If you have security of tenure, a landlord can only oppose your new tenancy on one or more of the seven grounds in section 30(1) of the 1954 Act. The ground(s) relied on must be stated in the section 25 notice or section 26(6) counter-notice.

| Ground | What it covers | Compensation if this is the sole ground? | |---|---|---| | (a) | Tenant's failure to repair — the holding is in disrepair because the tenant breached their repair obligations | No | | (b) | Persistent delay in paying rent | No | | (c) | Other substantial breaches of the tenant's obligations, or unsatisfactory management/use of the holding | No | | (d) | Landlord has offered suitable alternative accommodation on reasonable terms | No | | (e) | The holding was created by sub-letting part of a larger property, and the landlord needs to let or dispose of the whole for more overall rent | Yes | | (f) | Landlord intends to demolish, reconstruct, or carry out substantial construction work that requires possession | Yes | | (g) | Landlord intends to occupy the holding for their own business or as a residence | Yes |

Ground (g) has a built-in safeguard: under section 30(2), a landlord cannot rely on it if their interest in the property was bought or created within the five years before the tenancy's termination date, unless the holding has been let on a Part II tenancy throughout that period. Sections 30(1A), (1B) and (2A) extend this rule to landlords who control, or are controlled by, a company.

Compensation if renewal is refused on a no-fault ground

Not every refusal leaves the tenant empty-handed. Under section 37, a tenant is entitled to statutory compensation where the court is precluded from ordering a new tenancy solely because of one or more of the "compensation grounds" — (e), (f) or (g) — and none of the fault-based grounds (a) to (d) were also relied on.

The compensation is calculated from the rateable value of the holding:

• Twice the rateable value if, throughout the 14 years immediately before the tenancy ends, the premises were occupied for business purposes by the same occupier or their business successor (section 37(3)).
• The rateable value in any other qualifying case.

That figure is then adjusted by "the appropriate multiplier" — a multiplier set from time to time by the Secretary of State by statutory order under section 37(8). Because this multiplier is set by secondary legislation and can be updated, always check the current order on legislation.gov.uk (or ask a surveyor) rather than assuming a figure, before relying on any specific compensation calculation.

If the landlord's notice cites a fault ground such as arrears or breach of covenant — even alongside a no-fault ground — no section 37 compensation is payable.

Contracting out: leases without security of tenure

Landlords and tenants can agree, before a fixed-term business tenancy is granted, to exclude sections 24 to 28 of the Act entirely. This is governed by section 38A, and section 38 makes clear that any attempt to exclude the tenant's renewal rights outside this procedure is void.

To validly contract out, section 38A(3) requires:

1. The landlord to serve a prescribed warning notice on the tenant, in the form set out in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.
2. The tenant (or someone authorised on their behalf) to make a declaration confirming they've received and understood the warning notice — a simple declaration if this happens at least 14 days before the tenant is committed to the lease, or a statutory declaration before an independent solicitor if it happens later.

Get the sequence, form, or timing wrong, and the exclusion can be challenged — leaving a tenant with full security of tenure the lease says they don't have. This is a common area for drafting disputes, so the paperwork trail matters as much as the lease itself.

Holding over: what happens if time runs out before terms are agreed

If your lease has security of tenure and a valid section 25 notice or section 26 request has been served, section 24(1) means the tenancy simply continues on its existing terms — commonly called "holding over" — until a new tenancy is agreed, the tenant's application is withdrawn, or the court determines the outcome. Rent and other obligations keep running exactly as before; there's no gap in protection just because the original contractual term has technically expired.

If the lease was validly contracted out under section 38A, this statutory continuation doesn't apply. Once the contractual term ends without a new agreement in place, the tenant has no right to remain and risks becoming a trespasser or, at best, a tenant at will — a much weaker position with far less notice protection. Don't let a contracted-out lease run to its expiry date without a plan.

Worked example: a redevelopment dispute

Priya runs a bakery from a unit she's occupied under a 10-year business lease with security of tenure. Eight months before expiry, her landlord serves a section 25 notice opposing renewal, citing ground (f) — an intention to demolish the parade of shops and rebuild.

Because ground (f) is a "compensation ground" under section 37, and the landlord hasn't also relied on any fault ground, Priya is entitled to compensation if the court accepts the landlord's case (or if she doesn't contest it and simply quits). Since she's occupied the premises for 10 years, not the full 14 years required for double rateable value under section 37(3), her compensation is calculated at a single rateable value, adjusted by the current multiplier — not double.

Contrast this with a second tenant in the same parade who is three months behind on rent. If that landlord opposes renewal citing ground (b) (persistent delay in paying rent) rather than ground (f), no section 37 compensation is payable at all — even though the building is being redeveloped anyway — because the stated ground is fault-based.

Common mistakes that weaken your position

• Missing the six-to-twelve-month notice window. A notice or request served too early or too late may not have effect. Diarise the earliest and latest dates the moment the lease's expiry is known.
• Assuming security of tenure without checking. Many leases are contracted out under section 38A. Check the lease and any accompanying warning notice/declaration before assuming you have an automatic right to renew.
• Treating "the landlord wants us out" as the end of the conversation. Unless a section 30 ground genuinely applies and can be proven, opposition can be challenged.
• Not distinguishing fault grounds from compensation grounds. Confusing (a)-(d) with (e)-(g) leads to under- or over-estimating what compensation, if any, is available.
• Letting a contracted-out lease run to expiry with nothing agreed. Without section 24(1) continuation, the tenant's position weakens sharply once the term ends.
• Negotiating rent in isolation. Term length, break rights, repair obligations, service charge caps, permitted use and alienation terms all interact — a "good" rent on bad terms elsewhere isn't a good deal.

Reform on the horizon: the Law Commission's 2026 consultation

The Law Commission is currently consulting on reform of the 1954 Act's renewal mechanics. A second consultation paper was published on 16 June 2026, following an initial paper in November 2024, with the current consultation period running until 16 September 2026.

Importantly, the Commission has said it is not proposing to abolish or fundamentally restructure security of tenure, and the existing contracting-out model is expected to remain. The proposals on the table include possibly narrowing which short fixed-term tenancies are automatically excluded from protection (currently under six months, potentially extended to one or two years), and adjusting how the redevelopment ground (f) and landlord's-own-occupation ground (g) operate — for example, whether retrofitting and refurbishment works should count towards ground (f).

None of this is in force. Any changes would require the Government to decide whether to accept the Commission's eventual recommendations and then legislate. Until and unless that happens, sections 24 to 38A operate exactly as set out on this page — but if your renewal timeline stretches into late 2026 or beyond, it's worth asking your adviser whether anything has moved.

How to use this document

1. Check whether your lease has security of tenure. Look at the original lease and any section 38A warning notice/declaration to see if it was contracted out. If it was, you have no automatic right to a new lease and any renewal is by agreement only. If it wasn't, you likely have statutory protection under Part II.
2. Diarise key dates and serve or respond to notices properly. Map out the earliest and latest dates a section 25 notice or section 26 request could be served — six to twelve months before the termination date — and check any counter-notice deadline (two months for a landlord responding to a section 26 request).
3. Work out which section 30 grounds, if any, apply. If the landlord opposes, identify whether the stated grounds are fault-based (a)-(d) or compensation grounds (e)-(g), since this affects both your negotiating position and any compensation entitlement under section 37.
4. Gather evidence on market rent and comparable deals. Look at what similar units in your area are letting for, recent rent reviews, and any incentives landlords are offering such as rent-free periods or capital contributions. A surveyor familiar with local commercial property can help you pitch a realistic figure.
5. Negotiate the full package, not just the rent. Focus on term length, break rights, repair and reinstatement obligations, service charge caps, permitted use, alienation (assignment and subletting), and whether the new lease will be inside or outside the 1954 Act.
6. Review the final engrossment before signing. Once heads of terms are agreed, solicitors draft the new lease. Read it carefully against what was agreed and flag anything that has drifted. Once signed and dated, register the lease at HM Land Registry if its term requires registration, and keep copies of all renewal correspondence with your records.

This guide provides general information about commercial lease renewal in England and Wales. It is not legal advice and is not a substitute for advice tailored to your specific circumstances. The law described was accurate as at August 2026 and is subject to change — always check GOV.UK and legislation.gov.uk for the most current position, particularly given the Law Commission's ongoing consultation.

Last reviewed: August 2026 by a non-practising solicitor · Next review due: August 2027 or on legislative change.