The Court of Appeal has held that a tenant's unexercised option to renew does not take a business lease outside Part II of the Landlord and Tenant Act 1954, affecting commercial landlords and tenants.
Key facts
- Who: Business tenants whose leases contain an option to renew, and their landlords
- From: 13 May 2026 (judgment date)
- Source: Caterpillar Property Limited & Anor v Park Cakes Limited [2026] EWCA Civ 575
The Court of Appeal (Civil Division), in [2026] EWCA Civ 575, decided on 13 May 2026 that a lease is not excluded from the protection of Part II of the Landlord and Tenant Act 1954 merely because it contains a tenant's option to renew that has not been exercised. Lewison LJ gave the leading judgment; Asplin LJ and Elisabeth Laing LJ agreed.
Background
On 14 June 2007 Caterpillar Property Limited and Caterpillar Property Holdings Limited granted Park Cakes Limited leases of two factories, in Bolton and Oldham, for 20 years. Park Cakes occupies them for its cake-making business. Each lease contained an option allowing the tenant, after the end of the 17th year and on at least 12 months' notice, to take a further 10-year lease, provided it had paid the yearly rent up to the end of the term. The rent under the option would be set by indexation.
It was common ground that the option rent would be higher than the market rent. The tenant therefore wished to use its right to request a new tenancy under Part II of the 1954 Act, under which rent is set at market value.
The question
The landlords argued that section 28 of the 1954 Act excluded protection. That section says that where landlord and tenant agree to the grant of a future tenancy on terms and from a date specified in the agreement, the current tenancy continues until that date and is not protected by Part II. An "agreement" must be in writing. The landlords said the option was such an agreement. The question was whether it was.
The decision
The court dismissed the landlords' appeal, upholding the decision of District Judge Bond in the County Court at Leeds that the tenant was entitled to Part II protection.
The reasoning
Lewison LJ said an option is a unilateral, or "if", contract. Until the tenant exercises it, neither party is bound to grant or take a new tenancy. Only on full exercise do reciprocal obligations arise. So before exercise it cannot be said that the tenant has "agreed for the grant" of a future tenancy.
He relied on RJ Stratton Ltd v Wallis Tomlin & Co Ltd, where the Court of Appeal said a section 28 agreement is a binding contractual arrangement enforceable by the parties.
He also noted that conditions on an option, such as paying rent or performing covenants, must be strictly met, so a tenant's position under an option can be more precarious than under Part II. And because the tenant could not yet exercise the option, the landlords' argument meant the tenant had agreed to a future tenancy it could not yet enforce, a result Parliament was unlikely to have intended. Because Part II protects business tenants, the option should be viewed from the tenant's perspective, as akin to an irrevocable offer.
What this means for business tenants and landlords
An option to renew in a lease does not, by itself, mean the lease falls outside Part II of the 1954 Act. The court's reasoning turned on the option not yet having been exercised. Anyone with a lease containing an option should check its exact terms and conditions, and take advice before any notice deadline passes.
Sources
- Caterpillar Property Limited & Anor v Park Cakes Limited [2026] EWCA Civ 575, Court of Appeal (Civil Division), 13 May 2026: https://caselaw.nationalarchives.gov.uk/ewca/civ/2026/575