One of the most important pieces of legislation for landlords and tenants of commercial premises in England and Wales is The Landlord and Tenant Act 1954.
The Act governs whether a tenant can stay in a property after their lease ends, whether they can obtain a new lease and under what circumstances a landlord can recover possession.
Understanding how the Act operates, the statutory protections it provides to tenants, and how these protections can be removed in a commercial property lease are all key to protecting your position whether as a landlord or a tenant.
Table of Contents
- Does the 1954 Act apply to your commercial lease?
- What is Security of Tenure?
- Key notices of the 1954 Act
- Contracting out of security of tenure
- Opposing a renewal
- How a tenant can lose protection
- Current review of the 1954 Act
- Key recent 1954 Act case law
- FAQs
Does the 1954 Act apply to your commercial lease?
Whether the Act’s “security of tenure” provisions apply (i.e. whether a tenant has the protection of the Act) depends upon the following factors.
When a lease is protected
A lease will generally be protected if all of the below are true:
- The tenant occupies the property for business purposes.
- The occupation is ongoing at the end of the lease term i.e. the tenant is still actively using the premises for the purpose of their business.
- The lease hasn’t been expressly “contracted out” of the ‘Act (by the landlord and the tenant following a prescribed statutory exclusion process before the lease is entered into).
When the Act does not apply
3 common situations when the Act does not apply are:
- Short-term tenancies of less than 6 months
- Leases that have been formally “contracted out” (as above)
- Occupation agreements not constituting “true tenancies”, such as “licences to occupy”
What is “Security of Tenure” under the 1954 Act?
The Act provides “security of tenure” to tenants occupying premises for business purposes.
It is often assumed that when the fixed term of a commercial lease comes to an end, the landlord is free to renegotiate the terms, failing which it can remove the tenant from the premises. When a lease is protected this is not the case. Security of tenure guarantees that the tenant is able to continue their occupation after their initial contractual term ends, and this is known as a “continuation tenancy”. Continuing in occupation in these circumstances is known as “holding over”.
This means:
- The lease does not automatically end when the contractual term expires
- The tenant has the right to remain in occupation of the premises
- The tenant can apply to the courts for a new lease
It is important to note, however, that even when a tenant’s lease is protected (and they are on the face of it entitled to a renewal lease at the end of the term), in certain circumstances set out within the Act, a landlord is still able to terminate the lease.
Key notices under the 1954 Act
The 1954 Act provides for a series of formal notices which must be served by the landlord or the tenant depending on whether a new lease is proposed or opposed. Each comes with its own set of strict requirements.
| Notice | Who serves it? | Purpose |
| Section 25 Notice | Landlord | To either propose terms for a new lease or to oppose renewal on the statutory grounds |
| Section 26 Request | Tenant | To request a new lease and propose new terms |
| Section 27 Notice | Tenant | To bring the tenancy to an end and exit the premises |
Section 25 notice
A Section 25 notice allows a landlord to:
- End the current lease and propose terms for a new lease; or
- End the current lease and oppose the grant of a new tenancy
The notice must specify a termination date between 6 and 12 months from service.
Section 26 Request
A Section 26 request (or Section 26 Notice) is served by the tenant to request a new lease.
It must end the current lease and propose terms for the new lease.
Again, the notice must specify a termination date between 6 and 12 months from service.
A Section 26 notice cannot be served if a Section 25 notice has already been served, and a Section 25 notice cannot be served if a Section 26 notice has been served.
Section 27 notice (tenant exit)
A Section 27 notice allows the tenant to:
- Bring the tenancy to an end at the contractual expiry date, or
- End a “continuation tenancy” (when the tenant has been “holding over”)
Once served, the tenant will lose the protection of the Act and must vacate by the date specified in the notice.
A Section 27 notice must provide at least 3 months’ notice and can be served after a s25 or s26 notice has been served.
What is “contracting out” of the 1954 Act in a commercial lease?
Contracting out of the Act is a crucial feature of the legislation for both landlords and tenants.
Contracting out allows the landlord and tenant to agree that:
- The lease will not benefit from security of tenure provisions provided by the Act
- The tenant will have no right to remain in occupation at the end of the term and therefore no right to a renewal lease
Why do landlords contract out?
Contracting a commercial lease out of the 1954 Act provides the landlord with:
- Flexibility to recover possession at lease end
- Scope for future redevelopment
- More predictable portfolio management (as the Landlord retains much more control)
- Reduced litigation risk on renewal
What is the legal process of contracting out (Section 38A)?
Because tenants are giving away their statutory protection, the contracting out procedure must be followed precisely. It is set out in s38A of the Act and involves:
- The landlord serving a formal “warning notice” on the tenant before the lease is entered into.
- The tenant signing a formal declaration that it understands it is excluding its statutory rights.
- The lease wording must detail that the contracting out process has been followed.
How are the terms of a renewal lease determined?
The terms of the renewal lease are set by one of two paths:
- The tenant and landlord coming to an agreement
- Either the landlord or tenant applying to the courts to determine the terms where the parties are unable to agree them. In those circumstances, the Court will generally follow the terms of the existing lease (save for with regard to the rent).
How does the court determine the new rent?
Under the 1954 Act, the court determines market rent based on the open market rental value of the property.
This in turn is determined based on:
- The Statutory Test (Section 34): The amount a willing tenant would pay a landlord if the property was vacant and on the same general terms as the expiring lease.
- Market evidence: Expert valuation evidence is generally provided by surveyors on both sides.
- Statutory disregards: The court specifically ignores certain influencing factors such as improvements made to the property by the tenant, tenant goodwill based on the success of their business at the premises and any costs or disruption associated with the tenant departing.
What is interim rent?
Where a protected tenancy is being renewed under the 1954 Act, there can often be a significant period between the expiry of the contractual term and the completion of the new lease. During this period, either the landlord or tenant may apply to the court for an interim rent determination.
Interim rent is intended to ensure that an appropriate rent is paid while the terms of the renewal lease are being negotiated or determined. Depending on the circumstances, the interim rent may be higher or lower than the rent payable under the existing lease.
The date from which interim rent takes effect and the amount payable will depend on the specific facts of the case and the statutory provisions of the 1954 Act.
In some cases, the interim rent can be backdated and may result in a substantial adjustment to the sums payable by either landlord or tenant, making it an important strategic consideration during renewal negotiations.
Is there an alternative to going to court?
Besides the landlord and tenant coming to an agreement, there is also the option to use an Arbitrator. The Royal Institution of Chartered Surveyors (RICS) has created a process known as PACT (Professional Arbitration on Court Terms). An Arbitrator can be asked to determine the other terms of the renewal lease in addition to the rent.
Can a landlord oppose a commercial lease renewal?
Under Section 30 of the Act, landlords can oppose renewal by relying on one or more statutory grounds.
Common grounds
- Serious breach of lease obligations (including disrepair) by the tenant
- Persistent rent arrears
- Landlord’s intention to redevelop
- Landlord’s intention to occupy for its own business
How the courts approach cases
Courts apply these grounds strictly. For example:
- A landlord must show genuine intention and ability to redevelop or occupy
- Plans designed purely to remove a tenant will fail
- Evidence of funding and planning is essential
This is a key area where commercial property disputesarise.
How can a tenant lose protection under the 1954 Act?
A tenant may lose statutory protection in several ways, including:
- Vacating the premises before the lease expires
- Ceasing to occupy the premises for business purposes
- Serving a Section 27 notice
- Failing to meet critical deadlines for issuing court proceedings
- Entering into a lease that has been properly contracted out
Understanding these risks is essential, particularly where business decisions such as relocation or restructuring are being considered.
Is the 1954 Act due to change?
The Law Commission is currently conducting a major review of Part II of the Landlord and Tenant Act 1954, including the security of tenure regime for business tenancies.
The consultation is examining whether the current legislation remains suitable for the modern commercial property market and whether aspects of the renewal process could be simplified or modernised.
The review is considering issues including security of tenure, contracting out, lease renewals and the statutory grounds on which landlords can oppose a renewal. While no legislative changes have yet been implemented, landlords and tenants should keep developments under review as any reforms could significantly affect commercial leasing in the future.
How Napthens Can Help
Our commercial property and commercial property litigation teams work together to provide strategic advice at every stage of a commercial lease.
We can assist with:
- Lease drafting and negotiation
- Advising on contracting out
- Section 25 notices and Section 26 requests
- Opposed and unopposed renewals
- Resolving disputes through negotiation or court proceedings
We support both landlords and tenants in protecting their long-term commercial position.
Get in touch today to speak with an expert.
Key recent case law
- Pridewell v Spirit Pub: Tenant opposes landlord’s possession at the end of a lease for redevelopment
- Caterpillar v Park Cakes: Security of tenure under 1954 still offers protection even when tenant doesn’t exercise renewal option
- Star Pubs v Gunmakers Arms: Landlord repossesses property even under third-party management services agreement
FAQs
Security of tenure is the statutory right allowing a business tenant to remain in occupation and request a new lease when their existing lease expires, unless the landlord can establish one of the limited statutory grounds for opposition.
Contracting out means the landlord and tenant agree before the lease is entered into that the tenant will not have security of tenure, so the lease will end automatically without any right to renew.
To validly contract out, the landlord must serve a warning notice, the tenant must complete either a simple or statutory declaration depending on timing, and the lease must confirm that this process has been followed before the lease is completed.
A continuation tenancy arises when a protected lease expires but continues automatically on the same terms until it is formally ended under the 1954 Act, allowing the tenant to remain in occupation during renewal negotiations or proceedings. During this time, either party can apply for interim rent rates.
Yes. During lease renewal proceedings, either the landlord or tenant can ask the court to determine an interim rent. Depending on market conditions and the circumstances of the tenancy, the interim rent may be higher or lower than the rent payable under the existing lease.
Yes, if the lease is protected by the 1954 Act, the tenant can remain in occupation and apply for a new lease unless the landlord successfully opposes renewal.
If a lease is contracted out, it will end at the expiry of the contractual term and the tenant will have no automatic right to remain in the property or request a new lease.
If a tenant fails to apply to the Court before the termination date specified in a Section 25 notice or Section 26 request, they may lose their right to a new lease and their right to remain in occupation.
A Section 27 notice allows a tenant to bring a protected tenancy to an end and, once served, removes their right to remain in occupation beyond the notice period.
A landlord can only refuse to renew a protected lease if they can prove one of the statutory grounds in Section 30, such as redevelopment or intention to occupy the premises.
No, a contractual renewal option does not necessarily automatically remove statutory protection, especially if it is a unilateral option on the tenant’s part. Furthermore, unless the lease has been properly contracted out, the tenant may still rely on the 1954 Act.
A tenant may lose protection if they vacate the premises before the lease ends, stop occupying the property for business purposes, or enter into a lease that has been properly contracted out.
David Bailey | Partner, Head of Litigation
David Bailey is a partner and heads up the litigation team, based in the firm's Preston and Liverpool offices.
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