04/12/25
When you rent commercial premises in England & Wales, Part II of the Landlord and Tenant Act 1954 (“The Act”) gives most commercial tenants a powerful legal shield known as “security of tenure”. In simple terms, it lets you stay and keep trading when your contractual lease term ends and, in most cases, obliges the landlord to grant a new lease unless they can prove one of a handful of statutory grounds for refusal (for example, your persistent rent arrears or their genuine intention to redevelop).
The Act was passed amid the property shortages that followed the Second World War. Parliament wanted to stop businesses being uprooted overnight and to give entrepreneurs the confidence to invest in premises and local jobs. It therefore created a “default right to hold over and renew” protections that have remained in force ever since The Act came into operation on 1 January 1955.
“Contracting out”: when the parties choose not to have security
The reality today is that landlords often ask incoming tenants to “contract out” of The Act—meaning the tenant gives up their statutory right to renew the lease at the end of the term. This process is legal, but it must follow a strict statutory procedure:
- The landlord must serve a formal warning notice.
- The tenant must respond by signing a simple or statutory declaration acknowledging the exclusion.
- The lease must expressly state that it is contracted out.
If any of these steps are missed or completed incorrectly, the exclusion may be invalid, and the tenant may still have security of tenure—potentially leading to disputes later.
Because the consequences of contracting out are significant, it’s essential that tenants fully understand what they’re agreeing to.
CTT Law can help you review the lease terms and the “contracting out” documents to ensure your rights are protected. If you’re considering entering into a commercial lease and are being asked to waive security of tenure, feel free to contact us before signing. Our experienced Lawyers will guide you through the process and flag any issues you need to consider.
Why security of tenure matters to your business
- Business stability: You keep your trading location and goodwill, crucial for footfall‑dependent businesses.
- Leverage in negotiations: Renewal is the default, so you negotiate rent and terms from a position of strength.
- Compensation if you must leave: If a landlord refuses renewal on “no‑fault” grounds (e.g. redevelopment), you are entitled to statutory compensation based on the premises’ rateable value.
- Financing and fit‑out: Lenders and investors often require the predictability that security of tenure provides.
When you might accept “contracting out”
While security of tenure offers valuable protection, there are situations where contracting out may align with your business needs:
- Short-Term Occupation: For temporary arrangements such as pop-ups, pilot locations, or project-based tenancies, the flexibility of a contracted-out lease can be practical and cost-effective.
- Incentivised Terms: Some landlords may offer favourable rent, fit-out contributions, or other incentives in exchange for the certainty of repossession at lease end.
- Redevelopment or Transitional Sites: If you’re occupying premises that are earmarked for future redevelopment, agreeing to contract out may be the only route to secure a short-term lease in a desirable location.
Before agreeing to contract out, it’s essential to assess the long-term implications for your business. CTT Law can review the lease terms and advise you on whether contracting out is appropriate in your circumstances. Contact us before signing to ensure your rights and commercial interests are fully protected.
The Future of Security of Tenure
The commercial property landscape in 2025 looks very different from when The Act was first introduced. Modern trends such as shorter lease terms, co-working spaces, turnover-based rents, and sustainability upgrades were never anticipated by a law originally designed for a post-war high street of traditional retailers. Recognising that The Act may no longer fully reflect the needs of today’s market, the Law Commission launched a full review of The Act in November 2024 to assess whether reform is needed. Nonetheless, they provisionally concluded that there should be no change to the model of security of tenure and that the existing contracting-out model should remain. The Act therefore appears to be here to stay for now.
Security of tenure remains a cornerstone of commercial leasing, offering you vital protection to stay in your premises and negotiate a fair renewal. Whether you’re negotiating new lease terms, considering contracting out, or planning your business exit, understanding the legal framework is essential.
If you’re unsure about your rights, planning to sign a new lease, or need advice on renewing or terminating an existing one, it’s crucial to get expert guidance. Contact CTT Law today for trusted support with commercial lease reviews, security of tenure advice, or any business conveyancing needs. Our team combines deep legal knowledge with practical commercial insight to help you make confident, well-informed decisions.
