Business tenancy renewal rights under the 1954 Act

Q: What are the tax angles for tenants and their advisers?

SDLT on holding over: HMRC's manual at SDLTM14060 explains that a tenancy continuing under Part II is treated as a lease for one year longer than its original term, and then extended year by year, which can trigger a further SDLT return. A contracted out lease does not automatically continue. See SDLT on leases. Capital gains on statutory compensation: CG12995 explains that in Drummond v Brown the courts held that section 37 compensation was not a capital sum derived from an asset. CG71300 notes that consideration received when a lease ends under the 1954 Act may well be exempt, but the facts must show a termination rather than a surrender. Premiums and assignments: money paid to surrender or assign a lease is a different transaction with its own rules. See lease premiums and assigning a short lease.

Part II of the Landlord and Tenant Act 1954 gives most business tenants in England and Wales security of tenure: the lease does not end at its expiry date but continues until it is ended in one of the ways the Act allows, and the tenant can ask the court for a new lease. A landlord can only refuse renewal on the grounds in section 30, and the parties can agree before the lease is granted to contract out, provided the statutory notice and declaration procedure is followed.

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Which tenancies does the 1954 Act protect?

Section 23 applies Part II to any tenancy where the property is or includes premises occupied by the tenant for the purposes of a business carried on by the tenant. “Business” includes a trade, profession or employment and any activity carried on by a body of persons. Occupation by a company the tenant controls, or by a person controlling a tenant company, counts as occupation by the tenant (section 23(1A)), and section 42 does the same for members of a group of companies.

Section 43 excludes several kinds of tenancy, including agricultural holdings, farm business tenancies, mining leases, service tenancies tied to an office or employment, and tenancies for a term certain not exceeding six months, unless the lease allows renewal or extension beyond six months or the tenant and any predecessor in the business have been in occupation for more than twelve months. Section 43ZA also excludes home business tenancies of dwellings. The Act applies in England and Wales only; for the tax on Scottish leases see LBTT on leases.

What does security of tenure actually mean?

Under section 24, a protected tenancy does not come to an end unless it is terminated in accordance with Part II. When the contractual term expires the tenant can stay on under the same terms, often called holding over, until either side serves the statutory notices. The tenant can still leave. Section 27 lets a fixed term tenant give at least three months’ written notice before the expiry date that it does not want the tenancy to continue, and a tenancy already continuing under section 24 can be ended by at least three months’ written notice. Under section 27(1A), if the tenant is not in occupation when the term expires, the tenancy does not continue.

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How is a protected tenancy brought to an end or renewed?

Landlord’s section 25 notice

The landlord serves a notice in the prescribed form giving a termination date not more than twelve nor less than six months ahead, and not earlier than the contractual expiry date. The notice must say whether the landlord opposes a new tenancy. If it does, it must state one or more section 30 grounds; if not, it must set out proposals for the property, rent and other terms.

Tenant’s section 26 request

A tenant with a term of years certain exceeding one year can request a new tenancy starting not more than twelve nor less than six months after the request, again not before the contractual expiry date. The request must set out the tenant’s proposals. The landlord then has two months to serve a counter notice stating the grounds on which it will oppose renewal.

Going to court

Either party can apply to court for a new tenancy, and a landlord that opposes renewal can apply for termination without a new tenancy (section 29). Under section 29A the application must be made before the end of the statutory period, which ends on the date in the section 25 notice or immediately before the start date in the section 26 request. Section 29B lets the parties agree in writing, before that period ends, to extend it, and to extend it again. Missing the deadline without an extension agreement usually means the tenant loses the right to renew.

On what grounds can a landlord refuse a new lease?

Section 30(1) sets out seven grounds:

(a) disrepair caused by the tenant’s breach of repairing obligations;
(b) persistent delay in paying rent;
(c) other substantial breaches or reasons connected with the tenant’s use or management of the holding;
(d) suitable alternative accommodation offered on reasonable terms;
(e) the holding is part of a sublet property and letting the whole would produce substantially more rent;
(f) the landlord intends to demolish or reconstruct, or carry out substantial construction work, and cannot reasonably do so without possession;
(g) the landlord intends to occupy the holding for its own business or as its residence.

Ground (g) is not available to a landlord whose interest was purchased or created within the five years before the tenancy ends, where the property has been let on protected business tenancies throughout (section 30(2)).

What does the tenant get if renewal is refused?

Where the landlord succeeds only on grounds (e), (f) or (g), the “no fault” grounds, section 37 entitles the tenant to compensation on quitting. It is the rateable value of the holding multiplied by the appropriate multiplier, or twice that figure if the premises have been occupied for business purposes for the whole fourteen years before termination by the tenant or its predecessors in the business. The Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990 set the multiplier at 1 where the rateable value is fixed on or after 1 April 1990.

Section 38 makes void any agreement that excludes or reduces this compensation if the premises have been occupied for business purposes for the five years before the tenant quits. Outside that case, compensation can be excluded or varied by agreement.

How are the terms and rent of the new lease set?

If the parties cannot agree, the court decides. The term can be any length the court thinks reasonable, but a term of years certain cannot exceed fifteen years (section 33). Rent under section 34 is the open market rent, disregarding the effect of the tenant’s occupation, its goodwill, and certain tenant’s improvements. Other terms are set having regard to the current lease (section 35). Either party can also apply under section 24A for an interim rent while the old tenancy continues, generally payable from the earliest date that could have been specified in the notice or request (section 24B).

How does contracting out work?

Section 38A lets the future landlord and tenant of a lease for a term of years certain agree that sections 24 to 28 will not apply, so there is no right to renew and no statutory compensation. The agreement is void unless the procedure in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 is followed:

the landlord serves a warning notice in the Schedule 1 form;
if the notice is served at least 14 days before the tenant enters into the lease or becomes contractually bound, the tenant signs a simple declaration before that time;
if the notice is served with less than 14 days to go, the tenant must make a statutory declaration instead;
the notice, the declaration and the agreement must be referred to in or endorsed on the lease.

The same Order provides a parallel procedure under section 38A(2) for an agreement to surrender a protected tenancy.

Worked example

Illustration only. A firm of accountants holds a ten year lease of offices that expires on 30 June. Nobody serves notices, so on 1 July the lease simply continues under section 24 at the old rent. In September the landlord serves a section 25 notice giving a termination date the following April and opposing renewal on ground (g). The firm applies to court before the April date. If the landlord proves ground (g), the firm must leave, but because it has occupied the offices under this and an earlier lease for more than fourteen years it receives twice the rateable value multiplied by the appropriate multiplier. Had the lease been contracted out under section 38A, the firm would have had no right to stay after 30 June and no compensation.

What are the tax angles for tenants and their advisers?

SDLT on holding over: HMRC’s manual at SDLTM14060 explains that a tenancy continuing under Part II is treated as a lease for one year longer than its original term, and then extended year by year, which can trigger a further SDLT return. A contracted out lease does not automatically continue. See SDLT on leases.
Capital gains on statutory compensation: CG12995 explains that in Drummond v Brown the courts held that section 37 compensation was not a capital sum derived from an asset. CG71300 notes that consideration received when a lease ends under the 1954 Act may well be exempt, but the facts must show a termination rather than a surrender.
Premiums and assignments: money paid to surrender or assign a lease is a different transaction with its own rules. See lease premiums and assigning a short lease.

What mistakes do tenants and landlords make?

Missing the section 29A court deadline without a written extension agreement under section 29B.
Serving a contracting out notice after the tenant has already become contractually bound, which makes the exclusion void and leaves the lease protected.
Moving out before the expiry date and assuming the lease will still roll on. Under section 27(1A) a tenant not in occupation at expiry gets no statutory continuation, and loses the right to renew.
Assuming a tenant on a lease of one year or less can serve a section 26 request. Section 26(1) requires a term of years certain exceeding one year, although the landlord can still serve a section 25 notice.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.