The modernisation of commercial leasehold law: Law Commission's consultation

There is no shortage of change in real estate law at the moment, with several reforms set to change the commercial property landscape. Against this backdrop, the Law Commission published a consultation paper on 16 June 2026, proposing reforms to commercial leasehold law.

The consultation, Commercial Leasehold: Overcoming Barriers to Transactions, focuses on reforming the Landlord and Tenant Act 1987 (LTA 1987) and the Landlord and Tenant (Covenants) Act 1995 (LTCA 1995), for which responses will be accepted until 16 September 2026. It considers residential tenants’ rights of first refusal to commercial lettings in mixed-use buildings under the LTA 1987 and the extent to which the LTCA 1995 restricts commercial arrangements. 

Right of first refusal

Where a landlord proposes to dispose of an interest in a building with qualifying residential leaseholders, they are often required to offer that interest to those tenants before selling it to a third party. While the purpose of this is to protect residential occupiers, the reality is that it has created uncertainty in mixed-use developments. There are questions about whether commercial leasehold transactions trigger the statutory process, creating delays and thus increasing the legal complexity. To address this, the Law Commission proposes that the grant of a lease of premises used exclusively for non-residential purposes should not trigger the right of first refusal. 

This proposal is designed to ensure the protection given to residential leaseholders, while preventing the right from applying to transactions from which those leaseholders are unlikely to benefit. It should also reduce the current uncertainty around whether the right applies to commercial leases in predominantly residential buildings. 

Anti-avoidance provisions in the LTCA 1995

Under the LTCA 1995, on assignment of a tenancy, the landlord and tenant are released from lease covenants. In reality, some of the provisions aimed at avoiding the original tenant and landlord remaining liable have created practical difficulties for modern commercial leasing arrangements.

In this regard, the Law Commission has proposed to amend assignments and guarantee arrangements between companies within the same corporate group such that the guarantor for the outgoing tenant can remain the guarantor for the incoming tenant, thus reducing a potential procedural burden and smoothing the assignment process. 

The common thread running through the proposals is a desire to remove obstacles and ensure the legislative framework keeps pace with modern commercial practice. The proposals are relevant to a range of Stone King's clients that hold, manage or occupy commercial property, including charities, educational institutions and faith organisations. Any measures that reduce transactional uncertainty and administrative burden will be welcomed by organisations seeking to manage their property portfolios efficiently, and many organisations in these spheres will be affected by arrangements with connected entities. As a result, the proposals regarding the LTCA 1995 in particular, have the capacity to facilitate sensible reorganisations of commercial lease arrangements and would, in our view, be a positive development.