Business tenants keep their right to choose how to renew

In a case decided earlier this month, the Court of Appeal confirmed an unusual but important point for parties to business leases. 

The key issue 

The case (Caterpillar Property Limited & Anor v Park Cakes Limited [2026] EWCA Civ 575) looked at whether a business tenant loses their right to a renewal tenancy under Part II of the Landlord and Tenant Act 1954 (the “1954 Act”) - so-called ‘statutory security of tenure’ - if their lease includes an option to renew. 

The Landlords (of two leases) in this case argued that the existence of a renewal option meant the Tenant had already agreed to take a new lease in the future and that it was caught by section 28 of the 1954 Act, which had the effect of taking it outside of statutory security of tenure.  

If the Landlords were correct in their argument, then the Tenant’s right to renew would be limited to the terms set out in the option (which, potentially, could be less favourable). 

What the Court decided 

The Court of Appeal (in an expedited decision on a leapfrog appeal, due to time constraints) rejected the Landlords’ argument. 

It confirmed that: 

• A renewal option does not count as a binding agreement for a future lease unless and until it is actually exercised. 
• Until that point, a tenant keeps full protection under the 1954 Act. 
• As a result, in such a case a tenant may choose whether to: 

1. exercise the contractual option; or 
2. seek a new lease through the statutory process. 

Comments 

This decision gives clarity on an issue that had not previously been settled by higher courts.   

If the Court had decided the other way then it would have undermined the statutory security of tenure scheme for deciding whether and on what terms a business tenant might be allowed to remain. 

In practical terms: 

• Tenants retain flexibility – they are not forced to use a renewal option simply because it exists. 

• Statutory security of tenture remains intact, unless an option is actually exercised, or the lease has been properly contracted out of the 1954 Act. 

• Landlords cannot rely on options alone to remove a tenant’s security of tenure. 

The takeaway for business Tenants and Landlords

Business tenants with renewal options in their leases can still rely on the 1954 Act. They are free to choose the route that best suits them, whether that is: 

• renewing under the lease option; or 

• applying for a new business tenancy through the court. 

This provides useful reassurance for tenants and greater certainty when negotiating and managing business leases.