A recent Court of Appeal decision in Park Cakes Limited v Caterpillar Property Limited (2026) has called into question the interaction between contractual options to renew and statutory security of tenure under the Landlord and Tenant Act 1954 (the Act). The judgment highlights a recurring but often overlooked risk in property transactions of whether the inclusion of an option to renew is sufficient to exclude a lease from protection under the Act.

The case serves as a reminder of the strict approach the courts take when interpreting provisions said to exclude statutory protection, and the dangers of assuming that broadly drafted wording will successfully achieve that outcome. This insight outlines the background to the case, the judgment and what it means for landlords – including whether any action should be taken in light of the decision.

What are lease ‘options to renew’?

Options to take a lease (or agreements for lease) arise in a variety of contexts, including development agreements, conditional contracts and standalone option agreements.

Where landlords grant a new lease, the parties may also agree to include an option to grant a renewal lease on expiry of the initial lease term. These options are more commonly known as ‘options to renew’.

The background

In Park Cakes v Caterpillar, the Leeds Business & Property Courts considered whether leases containing tenant-only options to renew fell outside the protection of Part II of the Act by operation of section 28. This section provides that where the parties enter into a binding agreement for the grant of a future tenancy, the current tenancy will continue until that date and will not benefit from security of tenure.

The landlord had granted two protected leases to the tenant which included tenant-only options to renew. These would have allowed the tenant to take further leases, subject to serving the option notice and complying with conditions. The leases provided that the annual rent for any renewal lease is index-linked rather than at market rent (as per the initial leases).
The effect of this mechanism was that a renewal under the option could produce a rent higher than market rent. The tenant therefore wished to exercise their right to receive statutory renewal leases under the Act, which meant that the renewal leases would be granted on the same terms as the initial lease with the rent being determined by reference to market value.

The decision

The County Court previously determined that the options to renew did not fall within section 28, and the tenant would have the benefit of security of tenure under the Act. The landlord appealed that decision and argued that the presence of a contractual option to renew amounted to such an agreement and was therefore excluded from the Act’s protection.

However, the Court of Appeal disagreed and held that an unexercised option to renew does not constitute an “agreement for the grant of a future tenancy”. An option to renew only becomes binding once the option has been validly exercised by service of the option notice in accordance with its conditions, the Court stated.

The Court therefore dismissed the appeal and concluded that, unless and until the option is exercised, the lease remains under the Act’s protection. The tenant can benefit from both a contractual renewal route and statutory security of tenure.

Practical implications

Against that background, the decision raises a number of important practical considerations for landlords.

First, landlords should not rely on renewal options as a substitute for contracting out of the Act. If the statutory procedure under section 38A has not been followed, security of tenure is likely to persist regardless of any carefully drafted option provisions.

Secondly, landlords may face the unwelcome possibility of dual renewal routes. A tenant could choose to exercise its option or instead pursue a statutory renewal under the Act, potentially complicating asset management strategies and reducing certainty over vacant possession or redevelopment timelines. What may have been expected to be a neat solution could instead unravel..

Thirdly, the decision places renewed emphasis on lease structuring and risk allocation. While there may be attempts to draft options that more closely resemble binding agreements, the Court’s reasoning suggests that most conventional options will fall short unless they impose mutual obligations from the outset.

Conclusion

The case serves as a timely reminder that the Act continues to provide a robust layer of protection for commercial tenants and cannot easily be sidestepped by contractual innovation alone. For landlords, the key takeaway is clear: if you want to avoid security of tenure, you must follow the statutory contracting-out procedure.

Until further judicial guidance emerges, a cautious and orthodox approach remains advisable, particularly where the parties intend to exclude security of tenure.

Capsticks’ view

This decision reinforces that contractual mechanisms such as options to renew will not readily displace the statutory protections under the Act. Where parties intend to exclude security of tenure, this must be done through the prescribed statutory process, not by implication. Anything less risks leaving an option intact, with potentially significant commercial consequences.

In a market where development structures and conditional arrangements are increasingly complex, careful drafting at the outset remains the most effective form of risk management.

How Capsticks can help

Our Housing teams advise on all aspects of landlord and tenant transactions. If you have any queries around the discussion in this article, and the impact on your organisation, please speak to Partner Alessandra Pinot de Moira or Senior Associate Sarah Wheeler to find out more about how Capsticks can help.