Commercial leasehold reform: breaking down barriers in property transactions

Alongside the Law Commission’s Consultation on reform of the Landlord and Tenant Act 1954, the Law Commission has also published this second Consultation - Commercial Leasehold: overcoming barriers to transactions.  Responses to both Consultations are due by 16 September 2026.

This second Consultation looks at issues arising under the Landlord and Tenant Act 1987 and the Landlord and Tenant (Covenants) Act 1995, focusing on trying to solve some of the problems which are arising in practice and delaying commercial property transactions. 

The right of first refusal under the 1987 Act

The Issue

• If a landlord is proposing to dispose of all or part of its interest in a block of flats it must often give first refusal to residential leaseholders so that they can buy the interest rather than a third party. 
• This can cause issues if the right of first refusal is triggered in developments where there is a mixture of residential and commercial premises. 

The Proposals 

• The Law Commission are proposing that the grant of a lease of premises that are exclusively occupied or used for non-residential purposes should not trigger the right of first refusal. 
• This is subject to a limited exception for areas shared by residential leaseholders which are ancillary to their residential use.
• The proposal is designed to preserve the core protection that the right of first refusal gives residential leaseholders, while preventing the right from applying to transactions that are unlikely to be of benefit to those leaseholders. 
• This should help to alleviate the current issue about whether the right of first refusal applies to commercial leases which are in mainly residential buildings.

Anti-avoidance provisions in the 1995 Act

The Issue 

• The aim of the 1995 Act was to avoid the original tenant and landlord to a lease remaining liable on lease covenants after the lease is assigned.
• But, some of the anti‑avoidance provisions, which were intended to benefit tenants, are actually creating practical problems in commercial arrangements.

The Proposals 

• The Law Commission are consulting on certain aspects of the 1995 Act which may be preventing commercially important and sensible arrangements. 
• The Consultation explores whether greater flexibility can be introduced without undermining the 1995 Act’s central objective and makes proposals to facilitate:
  • assignments and guarantees involving group companies
  • assignments and guarantees involving partnerships where the partners comprising the assignor and assignee are in substantially the same partnership. There is also a proposal that repeat guarantees should be permissible in these circumstances - a repeat guarantee would be where one person acts as a guarantor for the outgoing tenant and again for the incoming tenant.
  • assignments to guarantors.

Click here for our Legal Update on the Law Commission Consultation on the Landlord and Tenant Act 1954.