Lawbite: Options and the 1954 Act: A case where you can have your cake and eat it

This County Court decision, which involves the manufacturer of the famous “Colin the Caterpillar” cakes, confirms that a tenant’s contractual option to renew contained within a business lease does not, by itself, remove the protection of Part II of the Landlord and Tenant Act 1954 (“LTA 1954”). The Court held that a contractual option for a new lease is not an “agreement for the grant of a future tenancy” for the purposes of section 28 of the LTA 1954 unless and until it is exercised.

Contractual options to renew are a feature of many leases, intended to operate in addition to a tenant’s statutory rights to renew under the LTA 1954. The decision is particularly relevant to business tenants of properties in England and Wales and their advisers negotiating leases, and provides reassurance that statutory security of tenure will not be lost inadvertently.

The Option to Renew

Park Cakes Limited occupied two commercial premises under long leases which included tenant only options to renew for a further ten year term. Once the tenant exercised the option, the landlord would become obliged to grant new leases subject only to updating terms to account for changes in the law.

The landlord, Caterpillar Property Limited and Caterpillar Property Holdings Limited, argued that these “baked in” renewal options amounted to an agreement for the grant of a future tenancy under section 28 of LTA 1954, meaning the leases never benefitted from statutory security of tenure.

Section 28 disapplies LTA Act where there is an enforceable agreement for the grant of a future tenancy, binding on both landlord and tenant.

Was section 28 disapplied?

The Court rejected the landlord’s argument drawing a clear distinction between an option to renew and an agreement for lease. An option, when granted, imposes no immediate obligation on either party to enter into a new tenancy. It merely gives the tenant a unilateral right which only becomes a binding bilateral agreement if and when the option is exercised strictly in accordance with the lease terms.

The Court found that an enforceable agreement for the grant of a future tenancy, binding on both landlord and tenant, is reached on exercise of the option, not before.

The Court also emphasised the wider policy of LTA 1954  and the importance of the statutory contracting out regime under section 38A as the proper route for excluding security of tenure.

Takeaways

• a tenant’s option to renew is not an agreement for the grant of a future tenancy unless and until it is exercised;
• section 28 of LTA 1954 only applies where there is an enforceable bilateral agreement binding both parties;
• tenants will not lose their statutory security of tenure simply because their lease contains a renewal option;
• contractual options to renew remain an effective mechanism, providing tenants with an alternative, and additional, means of securing a new lease;
• landlords seeking certainty should not assume renewal options override LTA 1954 and should consider formal contracting out under section 38A;
• this is a county court decision and as such non-binding, however, it is still very helpful to have some guidance and clarification from the court on this important point
• this might not be the final word on the matter as the case is being appealed. The appeal has been listed to be heard on 8th May 2026