Law Commission proposes major changes to business lease renewals

  • Posted

The Law Commission’s second consultation on reforming tenants’ legal right to renew their leases has now ended. While we must wait for the final report on any proposed changes, we do have some idea what they might look like.

Based on the Commission’s interim report from last year, it seems likely they will suggest keeping the existing rules largely intact, while raising the bar for which leases qualify. They may also recommend changes to the ‘contracting out’ process as well as empowering courts to look at alternative rental models, such as turnover rents, when landlords and tenants cannot agree on the level of rent.

In this article, we explain the proposed changes and what impact they may have for landlords and business tenants.

Need advice on business lease renewals? Please contact Rachael Spalton who will be happy to advise.

Key points to know

  • Currently, the default position is that most commercial tenants have an automatic right to renew their lease when the current term is coming to an end.
  • However, in practice, a large percentage of tenants agree to waive this right when entering a commercial lease (known as ‘contracting out’).
  • Tenancies of up to six months do not qualify for the right to renew and certain other tenancy types are excluded (e.g. agricultural tenancies).
  • The Law Commission is aiming to update the existing laws around business lease renewals to ensure they are actually used, rather than being opted out of as standard.
  • The Law Commission has previously proposed keeping the current rules in place but extending the qualifying threshold to two years, meaning tenancies shorter than this would not benefit from the right to renew.
  • Other key issues under consideration include simplifying the contracting out process and providing guidance for courts on imposing alternative rental models, such as turnover rents, during rental disputes.
  • The Law Commission’s second consultation on the proposed changes ended on 16 September 2026 – once the Commission has reviewed the responses, its final recommendations will be set out in a report.
  • Any changes recommended in the final report will only become law if they are approved by Parliament.

What the proposed changes would mean for landlords

Increasing the qualifying threshold for the right to renew could benefit landlords by giving them greater flexibility over the management of their property in granting short term occupations and retaining redevelopment opportunities. . It could also strengthen their position during lease renewal negotiations.

Simplifying the contracting out process could reduce legal costs and avoid the potential for confusion, which can increase the risk of future disputes.

Encouraging courts to impose turnover rents during rental disputes could be challenging for landlords as this means their rental income would be uncertain. As turnover rents are based on a percentage of the tenant’s turnover, the exact amount the landlord will receive may vary considerably over time.

How tenants would be affected

A higher qualifying threshold could mean that fewer tenants would have the automatic right to renew their leases. However, since contracting out is so common, this is likely not a major concern for most tenants.

What may be more relevant is that this change could incentivise more landlords to offer shorter leases. Currently, lease terms of five or more years are fairly standard, but landlords may choose to offer two-year leases to avoid triggering the right to renew.

A simplified contracting out process would likely benefit tenants as much as landlords for the same reasons – a reduction in legal costs, room for confusion and potential future legal disputes.

Turnover rents tend to benefit tenants by ensuring their rent is proportionate to how well their business is doing. However, they do require sharing detailed sales information with the landlord. Overall, if the law is changed to make it more likely courts will impose turnover rents in rent disputes, this will tend to benefit tenants.

How Longmores can help with business lease renewals

At Longmores, we regularly assist landlords and tenants with all aspects of commercial leases, including renewals. Drawing on decades of specialist expertise across our team, we can help you secure a lease renewal on the right terms for you, keeping your interests protected at all times.

For expert advice on business lease renewals, please contact Rachael Spalton who will be happy to advise.

Please note, the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.