Cutting red tape in commercial leasehold transactions: Law Commission consultation

The Law Commission has published a significant consultation paper proposing targeted reforms to two pieces of legislation that have long caused practical problems in commercial property transactions: issues with the Landlord and Tenant (Covenants) Act 1995 and rights of first refusal under the Landlord and Tenant Act 1987. 

Published on 16 June 2026, the consultation, Commercial Leasehold: overcoming barriers to transactions, forms part of the Law Commission's 14th Programme of Law Reform and runs alongside a parallel consultation on business tenancies and security of tenure. The proposed changes are designed to streamline commercial property transactions, reduce unnecessary cost and delay, and remove legal uncertainty that has frustrated landlords, tenants, and investors in the commercial property sector.

Background and Context

The Law Commission's commercial leasehold project sits within a broader programme of reform aimed at modernising the legal framework governing commercial property in England and Wales. This is the first of two sub-projects and aims to addresses specific barriers to commercial property transactions arising under the 1995 and 1987 Acts. The second sub-project will review the law governing maintenance, repair, and upgrading of leased commercial buildings, including dilapidations, service charges, and the interaction between environmental frameworks and commercial leasehold law.

Key Proposed Reforms

Right of First Refusal Under the 1987 Act

Under the current law, a landlord proposing to dispose of all or part of its interest in a building containing flats must often offer first refusal to residential leaseholders. On a strict interpretation of the 1987 Act, this requirement can inadvertently capture the grant of purely commercial leases in mixed-use developments, potentially causing delay and confusion for those involved in transactions that were probably never intended to be subject to rights of first refusal in favour of residential tenants.

The Law Commission provisionally proposes to make it express that the grant of a lease of premises exclusively occupied or used for non-residential purposes should not trigger the right of first refusal. A limited exception would be preserved for areas shared by residential leaseholders which are ancillary to their residential use. This is intended to preserve the core protection for residential leaseholders whilst removing a significant obstacle to routine commercial lettings in mixed-use buildings.

Anti-Avoidance Provisions Under the 1995 Act

The 1995 Act was introduced to release tenants from ongoing liability after they assign their lease, unless they enter into an authorised guarantee agreement (AGA). However, certain anti-avoidance provisions — originally designed to protect tenants — have created unintended obstacles for commercially sensible arrangements, particularly intra-group transfers and partnership restructurings.

The Law Commission proposes to introduce greater flexibility to facilitate assignments and guarantees involving group companies, assignments and guarantees involving partnerships and assignments to guarantors. These reforms aim to remove barriers that have prevented straightforward corporate restructurings and portfolio management without undermining the 1995 Act's central tenant protections.

Next Steps and Timeline

The consultation is open until 16 September 2026, and the Law Commission is inviting responses from all stakeholders including landlords, tenants, representative groups, property professionals, and legal practitioners.  The Law Commission will use the consultation responses to inform a report setting out its conclusions and recommendations. Timings for the second sub-project on maintenance, repair, and environmental sustainability will be confirmed in due course.

What Should You Be Doing Now?

Clients with interests in commercial property should consider engaging with the consultation process before 16 September 2026, particularly if they have experience of the practical difficulties caused by the current legislation. Responses can be submitted via the Law Commission's online response form or by email. 

In the meantime, parties involved in affected transactions must continue to comply with the existing legal requirements pending any legislative change, which could still be many years away, if it happens at all. 

The first sub-project is a focused review of two aspects of the law relating to commercial leasehold transactions: (1) issues with the Landlord and Tenant (Covenants) Act 1995; and (2) rights of first refusal under the Landlord and Tenant Act 1987 (in so far as the law relates to commercial premises).

https://lawcom.gov.uk/project/commercial-leasehold/