Renewal options and security of tenure in commercial leases 

Caterpillar Property Ltd & Anor v Park Cakes Ltd [2026] EWCA Civ 575

The Court of Appeal has in the recent case of Caterpillar Property Ltd & Anor v Park Cakes Ltd [2026] EWCA Civ 575 held that an unexercised contractual option to renew does not disapply the statutory renewal rights available to commercial tenants under Part II of the Landlord and Tenant Act 1954 (‘the 1954 Act’).

The commercial tenant, Park Cakes Ltd, held two 20-year leases of factory premises in Bolton and Oldham respectively. Each lease provided the tenant with an option to take a further 10-year lease, exercisable after the 17th year of the term subject also to the tenant paying the rent up to the end of the term.

If the tenant had exercised its renewal options, the new rents would have been above market-rate. As a result, the tenant chose not to exercise the renewal options and instead sought to rely upon its statutory right to seek renewal leases under Part II of the 1954 Act. By doing so, the rent would instead be assessed under the statutory regime, a more favourable position for the tenant.

Section 28 of the 1954 Act provides that Part II of the 1954 Act (and therefore the statutory lease renewal procedure) is disapplied where the parties “agree for the grant to the tenant of a future tenancy”.

The key question was whether the option to renew constituted an agreement for the grant of a future tenancy within the meaning of section 28 of the 1954 Act.

Finding in favour of the tenant, the Court of Appeal held that an unexercised option to renew does not amount to an agreement for the grant of a future tenancy. As the contractual renewal right had not been exercised, there was no binding bilateral agreement for the new lease, and section 28 was not triggered. The Court iterated that “from the tenant’s perspective the option is best regarded as analogous to an irrevocable offer rather than a conditional contract” and that it would be incorrect to view all options to renew as an automatic entitlement to a new lease, adding that, “Other forms of option may be contingent on full performance of covenants. Any such condition must be strictly complied with. Even trivial breaches may preclude successful exercise of the option…”

The Birketts view

For landlords, if the intention is to exclude security of tenure, the safer course of action remains the formal contracting-out procedure under the Act, rather than seeking to later rely upon section 28 of the 1954 Act.

For tenants, the case re-affirms that there can be a strategic choice to be made between exercising a contractual renewal option, or instead pursuing a statutory renewal.