1954 Act under Review: Key Issues from the Law Commission’s Second Consultation

The Law Commission has now published its second consultation on reform of the security of tenure regime under the 1954 Act, inviting views on a wide-range of proposals which aim to modernise the existing regime, reduce complexity and costs, and better reflect modern commercial property practices.

Although no final recommendations have been made, the consultation represents the most significant review of the 1954 Act since its inception more than 70 years ago, and the potential reforms which could flow from it are likely to have a considerable impact on the commercial property sector.

For landlords and investors, proposals aimed at simplifying contracting out and increasing flexibility for shorter lettings are likely to be welcomed, whilst tenants will no doubt watch closely for any changes to the qualification criteria which could affect their access to renewal rights for shorter-term occupation arrangements.  

Developers and asset managers will also want to consider the potential implications of the proposed reforms which could affect their redevelopment strategies, sustainability-driven projects and the treatment of environmental lease provisions.

Ultimately, many of the proposals remain subject to consultation, and the Law Commission has intentionally sought stakeholder input upon numerous areas where different policy options remain under consideration, rather than forming a settled view at this stage.

The Consultation

The Landlord and Tenant Act 1954 governs the rights of business tenants to remain in occupation and obtain renewal tenancies when their existing leases come to an end, unless their landlords can successfully oppose renewal on specified statutory grounds. 

Following its first consultation, the Law Commission continues to support the current security of tenure model, whereby business tenants will benefit from security of tenure by default, subject to the parties having the option to contract out if they wish. 

The current consultation therefore focuses on how the regime might be improved in practice, and the key proposals include:

Qualifying tenancies

One of the most significant proposals concerns the types of tenancies which qualify for security of tenure.

Currently, fixed term tenancies of six months or less are excluded from the security of tenure regime.  The Law Commission now proposes increasing this threshold to limit protection to tenancies which are granted for more than one year or, alternatively, more than two years.

It also proposes excluding all new periodic tenancies from protection and allowing all written tenancies, including renewal tenancies, to be contracted out.  These changes are intended to remove anomalies in the current regime and to provide greater flexibility, particularly in the short-term lettings market.

Simplifying the contracting-out process

One of the proposals under consideration is to replace the existing warning notice and declaration procedure with a simpler contracting out process embedded within the lease itself - a lease would be validly contracted out if it contains a prescribed warning from the landlord which explains that the lease is contracted out and sets out the consequences for the tenant, and a prescribed declaration by the tenant which confirms that it has read and understood the warning.

The proposals also seek to address practical difficulties which commonly arise in agreements for lease, options to renew and similar commercial arrangements.

If introduced, the proposed reforms would give greater certainty to landlords that leases have been validly contracted out, remove the cost and inconvenience of having to prepare notices and declarations - and the associated delays this may bring to a transaction - and create fewer opportunities for procedural errors. 

Renewal terms, sustainability and rent

The consultation also considers whether the current framework remains fit for purpose in a changing market.

While the Law Commission provisionally concludes that the existing approach to determining non-rent lease terms should largely be retained, it seeks views on whether environmental and sustainability considerations should be given greater recognition when courts determine renewal lease terms, and how Minimum Energy Efficiency Standards (MEES) requirements and broader sustainability objectives, in particular, may be taken into account.

The consultation also considers emerging rental models and recognises the growing prevalence of turnover rents and other alternative rental models.  It seeks views on how courts should approach these arrangements when determining the rent payable under renewal leases, as well as views on potential reform of the rules relating to the calculation of interim rent during continuation tenancies.

Ground F

The landlord’s redevelopment ground of opposition (Ground F) is also a major focus.

The consultation acknowledges concerns that the current statutory wording may not adequately reflect modern redevelopment practices, such as refurbishment, retrofitting and works to improve environmental performance.  It therefore seeks views on various reform options, including expanding the scope of qualifying works or replacing the existing categories with a broader “substantial works” test.

Compensation

The consultation considers whether compensation payable to a tenant when a landlord successfully opposes renewal on one of the so-called ‘no-fault’ grounds should continue to be based on the rateable value of the premises, or whether it should be determined by reference to the rent under the tenancy.

It also considers whether the single threshold of 14 years’ occupation for payment of a higher rate of compensation should remain or whether stepped bands should be introduced, and whether the rules for excluding the right to compensation should be altered.

Dispute Resolution

The Law Commission recognises concerns about the current County Court dispute resolution mechanism, and seeks views on whether higher value or more complex disputes should be determined by the High Court, whether all disputes should go to the Tribunal, or whether disputes should be split between the Courts and the Tribunal.

Looking ahead

The consultation closes on 16 September 2026, and, following consideration of the responses, the Law Commission will decide whether to make recommendations to the Government for legislative reform.

If the proposals are likely to affect your property portfolio or your business, have your say now!  Please do share your thoughts with us and we would be happy to pass your comments to the Law Commission if you wish – please email your usual property litigation team contact and/or Sarah Buxton.