The icing on the cake

Further to our previous note on Park Cakes Ltd v Caterpillar Property Ltd (2026) - What is the impact of an option to renew on security of tenure? - the Court of Appeal has now confirmed that an unexercised option to renew does not constitute an agreement for the grant of a new tenancy under section 28 of the Landlord and Tenant Act 1954 (“1954 Act”).   This means that the tenant, who has protected tenancies, has not lost its security of tenure by virtue of its leases containing options. 

The Court said that it was correct to consider the position from the perspective of the tenant, given that the 1954 Act is intended to protect business tenants. An option does not create a legal obligation on either party unless and until it is exercised. It is equivalent to an irrevocable offer and before it is exercised, the tenant cannot be said to have “agreed for the grant” of a new tenancy, as required by Section 28. There was no judicial authority on the point, and the appeal was expedited so that the tenant could have the question resolved before the deadline to exercise the options arose in mid-June. It can now choose which route (option or 1954 Act renewal) offers more favourable renewal terms. 

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