UK Commercial Leasehold Reform Back In Focus: Law Commission's 14th Programme

Commercial Leasehold Reform

The law of commercial leasehold is no stranger to the focus of the Law Commission, with one of their current projects being the right to renew business tenancies under Part 2 of the Landlord and Tenant Act 1954. The Interim Statement on the direction of reform for this project was published in June 2025 and it concluded (unsurprisingly in our view) that the current contracting-out model for security of tenure should remain. But the Commission announced it would consult on extending the length of short-term lets which are automatically excluded from protection from six months to two years. We eagerly await the second consultation of this project, which will focus on the technical detail of reform in key areas. Progress on this project has been slower than the Law Commission envisaged, but this article highlights the top three areas of reform that we would like to see in the second consultation.

Under the new 14^th Programme, the Law Commission has taken a two-pronged approach to commercial leasehold with two sub-projects. The first will look closely at two Acts which can create barriers for businesses by inflicting unnecessary bureaucracy on them when dealing with commercial leasehold properties: the Landlord and Tenant (Covenants) Act 1995 and the Landlord and Tenant Act 1987.

• The 1995 Act is designed to end continuing liability for tenants when they assign their lease of commercial premises, but it can cause wide, unintended consequences where intra-group transfers/ reorganisations fall foul of its anti-avoidance provisions or they create tension with lease drafting.
• The 1987 Act grants a right of first refusal to qualifying tenants of residential parts in a building where the landlord wishes to make a relevant disposal of its interest (including the grant of a long headlease). If an offer is not made to the qualifying tenants first, there are serious consequences for the landlord including criminal and civil liability.

The second sub-project is a scoping one which aims to discover which issues exist that might be solved by law reform, focusing on the maintenance, repair and upgrading of leased commercial buildings. There is a concern that the current system can be unfair and confusing, and a recognition that it complicates attempts to improve environmental sustainability and reinvigorate our high streets – two clear priorities for the sector.

Management of Housing Estates

This project will consider creating a new "right to manage" common areas for freehold homeowners on housing estates, where the developer often retains control of the roads and other common parts of the estate. There is a concern that this ownership structure is being used to maximise profits and income stream for the developer, leading to excessive service charges for homeowners with no way to take over management themselves and limited rights to challenge the level of charges.

In particular, the Law Commission wants to look at how the current Right to Manage scheme, which benefits leaseholders in blocks of flats, could be adapted. This project is sponsored by the Ministry of Housing, Communities and Local Government and the Law Commission plans to release a consultation in 2026.

Ownerless land

Currently, land which was owned by a company which is dissolved becomes "ownerless land" which passes to the Crown. The ownerless land could have environment or building safety hazards that require active management, and the Law Commission gives the examples of blocks of flats, dangerous industrial sites and mines, recycling centres, reservoirs, and city landmarks. As the Crown is not liable for this land unless and until it performs an act of management or control, there are legal uncertainties about how the current law operates. This can lead to cases where the Crown is unable to give permission for a party to enter the land where they need to deal with safety/environmental concerns for risk of assuming liability. To address these safety concerns, and remove obstacles to returning land to a profitable use, this project aims to review the law on ownerless land, and consider whether some types of ownerless land ought to pass to a body other than the Crown, as well as reviewing its liability shield. Additionally, the project will review the rights of leaseholders whose landlords' land has reverted to the Crown and the impact on land registration.

Deeds and Digitisation

The Law Commission proposes to examine whether deeds remain fit for purpose, including legal formalities such as witnessing, attestation, and delivery, and how the law might keep apace of technological advancements such as smart contracts. Any reform in this area would have a direct impact on many real estate transactions, most notably leases, as the general rule is that a lease must be made as a deed to take effect at law under section 52 of the Law of Property Act 1925.

Agricultural Tenancies

There is a concern that the Agricultural Holdings Act 1986 and the Agricultural Tenancies Act 1995 have failed to balance the interests of landlords and tenants, stagnating growth by preventing tenant farmers from building on their businesses. The agricultural tenancies project will consider the balance of security for tenant farmers with the interests of landlord, to encourage confidence in landlords and investors and increase the opportunities available for new entrants to the sector.

Comment

We are experiencing unprecedented levels of property law reform, from the Renters' Rights Bill to wide-ranging residential leasehold reforms and the anticipated consultations on commonhold ownership, to the ban of upward-only rent review clauses in commercial leases.

It is fantastic to see real estate in the focus of the Law Commission, although the announcement of their Programme in no way guarantees that these reforms will be timely, or that the recommendations will ultimately be accepted or acted upon. Law Commission Chair Sir Peter Fraser said:

"With this 14th Programme of Law Reform, we are laying out a substantial body of work that will bring the existing law up to date.

"In all our projects, we endeavour to provide high-quality recommendations for law reform for Parliament to consider so that the law remains modern and relevant to our changing society."

There is no set timescale for these projects (except for the Management of Housing Estates), so for now, this is one to keep an eye on.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.