Caterpillar Property v Park Cakes: 1954 Act Still Offers Protection Where Tenant Given Contractual Option to Renew

The Landlord and Tenant Act 1954 (1954 Act) can create automatic protections for tenants of commercial leases when it comes to renewal, unless the lease falls within one of the exceptions or the parties follow an exclusion procedure.

But what happens when the lease contains a contractual option to renew? Does the security of tenure statutory protection still apply to that lease?

This was the key point in the May 2026 case of Caterpillar Property Ltd and another v Park Cakes Ltd [2026] EWCA Civ 575 that the County Court and Court of Appeal considered.

This article looks at the background of the case, the initial judgment, appeal judgment, and what tenants and landlords can learn from this development in case law affecting landlords and tenants in England and Wales.

Background to the Case

The tenant, Park Cakes Ltd (known famously for its Colin the Caterpillar cake), had leases on two factories of 20-years.

Written into both leases was a tenant’s contractual option to renew for another 10 years.

However, exercising those options was not attractive to the tenant because s:

• Rent under the option would be determined on a pre-agreed formula, rather than open market value.
• This was anticipated to result in a higher rent than under the statutory renewal process under the 1954 Act (see section 34), in which market rent is applied by the courts should the tenant and landlord not come to an agreement.

With the lease approaching its end, Park Cakes sought to rely on its statutory right to renewal tenancy under the 1954 Act based on the above points. Park Cakes therefore did not exercise the contractual option to extend under the pre-agreed formula.

The Key Legal Issue

Section 28 of the 1954 states:

Where the landlord and tenant agree for the grant to the tenant of a future tenancy of the holding, or of the holding with other land, on terms and from a date specified in the agreement, the current tenancy shall continue until that date but no longer, and shall not be a tenancy to which this Part of this Act applies.

The key arguments centred around whether the leases had 1954 Act protection or whether they were excluded pursuant to Section 28.

The landlord argued:

• The presence of a renewal option in the lease amounted to an “agreement for the grant of a future tenancy”.
• As a result, the leases were excluded from 1954 Act protection.
• The tenant’s only route to renewal was therefore through the contractual option.

The tenant argued:

• An option is not an agreement for the grant of a future tenancy, unless and until it is exercised.
• Unless and until that option is exercised, the tenant remains entitled to full statutory protection.

County Court Decision

The County Court sided with the tenant, dismissing the landlord’s claim.

It held that an unexercised option to renew is not an agreement within the meaning of Section 28 of the 1954 Act, as:

• An option provides a unilateral right to the tenant (a one-sided privilege).
• An option does not bind the tenant to take a further lease.
• There is therefore no binding agreement for future tenancy between tenant and landlord.

The leases therefore remained under the protection of the 1954 Act, allowing the tenant to either exercise the option or seek new tenancy under the act.

The landlord made an appeal.

Court of Appeal Decision

The Court of Appeal agreed with the County Court’s original ruling and dismissed the landlord’s appeal.

The key finding by the CA was:

An unexercised option to renew does not amount to an “agreement for the grant of a future tenancy” under section 28.

The CA drew distinction between a binding bilateral agreement and a contingent unilateral agreement. The former would engage Section 28 while the latter would not, and this option was deemed to constitute the latter.

The CA confirmed that:

• An option only becomes binding once exercised.
• Until then, it remains non-binding on the tenant.
• Section 28 requires a mutual commitment by both landlord and tenant, which an unexercised option does not provide.

Key Takeaways

The case clarifies how the courts approach Section 28 of the 1954 Act.

1.     Renewal options offer the tenant flexibility

When a tenant is the unilateral beneficiary of a renewal option in a commercial lease, they are not forced to use them.

The tenant will still have the power to choose between:

• Exercising the contractual option
• Relying on the statutory renewal process under the 1954 Act’s security of tenure

In practice, this means that if the tenant deems the contractual option to be unfavourable compared to the market rent that a court would apply under 1954 Act, they may wish to not exercise the contractual renewal option.

2.     Landlords cannot rely on options alone

Landlords should not assume that a renewal option will:

• Remove the statutory protection offered by the 1954 Act
• Limit the tenant to the renewal option alone

Thus, if a landlord wishes to remove the ability for the tenant to rely on statutory protections, they must follow the formal contracting out procedure under Section 38A of the 1954 Act.

Seeking Legal Advice on Commercial Lease Contracts and Renewals

Early legal advice is particularly important where:

• You are considering entering a commercial lease contract
• A contractual renewal option is approaching its exercise deadline
• The lease contains complex rent review or indexation provisions
• A tenant is considering whether to exercise an option or pursue a statutory renewal
• A landlord is looking to oppose renewal or restructure occupation
• Parties are negotiating new leases or variations and want clarity on whether to include, exclude, or limit statutory protection

Napthens’ commercial property and commercial property litigation teams are home to specialist solicitors to support your landlord or tenant journey, whether you are drafting a contract, litigating, defending a claim, or simply wish to understand your options.

Get in touch today to speak with an expert.