Section 28 Landlord and Tenant Act 1954: An Unexercised Tenant’s Renewal Option Does Not Exclude Part II Protection
1. Introduction
In Caterpillar Property Ltd & Anor v Park Cakes Ltd [2026] EWCA Civ 575 (Court of Appeal (Civil Division)),
the landlord-appellants argued that a business lease fell outside the security of tenure regime in Part II of the
Landlord and Tenant Act 1954 because it contained a contractual tenant’s option to renew.
The tenant-respondent, a manufacturing occupier, wanted to invoke Part II because the option renewal rent mechanism
would produce a rent higher than market rent (whereas a statutory renewal generally proceeds on market rent under section 34).
The central issue was narrow but important for commercial leasing practice:
does the mere existence of an unexercised option to renew amount to an “agreement” for a future tenancy so as to trigger section 28,
thereby excluding the current tenancy from Part II?
2. Summary of the Judgment
The Court of Appeal (Lewison LJ, Asplin LJ, Elisabeth Laing LJ) dismissed the landlords’ appeal and upheld the decision below.
It held that an unexercised option to renew is not an “agreement” “for the grant to the tenant of a future tenancy” within
section 28. Section 28 requires a binding, mutually enforceable commitment by both landlord and tenant to grant and take a future tenancy.
An option remains unilateral unless and until it is validly exercised; only then does it crystallise into a bilateral contract.
3. The Court’s Reasoning (Core Holding)
3.1 Statutory context: Part II and section 28
Part II of the 1954 Act provides business tenants with statutory continuation and (where the landlord cannot prove a section 30 ground)
a right to a new tenancy on terms including a market rent (section 34).
Section 28 is one of the exclusion mechanisms. It provides (in substance) that where landlord and tenant
agree in writing (section 69(2)) for the grant of a future tenancy on specified terms and from a specified date, then the current tenancy continues
only until that date and “shall not be a tenancy to which this Part of this Act applies.”
3.2 Why an option is not (yet) the section 28 “agreement”
The Court rejected the landlords’ attempt to treat an option as equivalent to a concluded agreement for a future lease. Key points were:
-
No mutual commitment at grant: when an option is granted, the tenant is not bound to take the renewal lease.
It cannot therefore be said that landlord and tenant have agreed for the grant of a future tenancy (Lewison LJ at [18]–[19]).
-
Conditionality and strict compliance: options commonly require strict fulfilment of conditions (notice, rent payment, covenant compliance, third-party events).
Even trivial breaches may defeat an option, making it wrong to assume an option always gives the tenant an “effective entitlement” to a new lease ([15]–[16]).
-
Timing and enforceability: in this case the option could not be exercised until after year 17 of a 20-year term.
Treating Part II as excluded from the outset would mean the tenancy was outside protection long before the tenant had anything enforceable to demand a new lease ([22]).
-
Tenant perspective: consistent with the protective purpose of Part II, the legal nature of the option was analysed from the tenant’s standpoint:
it resembles an irrevocable offer until exercised, not a presently binding bargain to take a future lease ([23]).
4. Precedents Cited and Their Role
4.1 Spiro v Glencrown Properties Ltd [1991] Ch 537
Cited for the well-known description of an option as sui generis, sharing features of both an irrevocable offer and a conditional contract.
The Court accepted that characterisation but used it against the landlords’ case: the option’s “conditional/unilateral” nature undermined the contention that
it is already an “agreement for” a future tenancy within section 28 ([12], [23]).
4.2 O'May v City of London Real Property Co Ltd [1983] 2 AC 726
Relied on by the landlords to emphasise that Part II protects continuation of the business occupation, not rent control or general contractual re-writing.
The Court did not disagree with that proposition, but it did not justify expanding section 28 to cover arrangements (like unexercised options)
that do not yet amount to a concluded bilateral agreement to grant and take a future tenancy ([13]).
4.3 Finch v Underwood (1876) 2 Ch D 310
Used to illustrate the strictness with which conditions attached to options must be performed.
This supported the Court’s point that an option can place the tenant in a more precarious position than the statutory regime, and therefore cannot be assumed to be
a substitute for statutory protection in the way section 28 presupposes ([15]–[16]).
4.4 Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444
Central authority in the reasoning. The Court adopted Lord Diplock’s analysis that an option is a unilateral (“if”) contract and only becomes synallagmatic/bilateral
when the grantee serves the exercise notice, which then generates mutual obligations. That conceptual transition was pivotal to construing section 28 as requiring
a present bilateral commitment ([18]–[19]).
4.5 RJ Stratton Ltd v Wallis Tomlin & Co Ltd [1986] 1 EGLR 104
Treated as direct support for the proposition that section 28 contemplates a binding contractual arrangement enforceable by the parties at law.
The Court read that as requiring mutual enforceability—i.e., an obligation on the tenant to take as well as on the landlord to grant—something missing until an option
is exercised ([20]–[21]).
Cited not for substantive landlord-and-tenant law, but for appellate method:
where the lower court’s reasoning is correct, the Court of Appeal may affirm it without repeating it at length.
Lewison LJ used this to underline that the first-instance reasoning (by the District Judge) was, in substance, adopted ([24]).
5. Impact and Significance
-
Clarifies the reach of section 28: section 28 is not triggered by a lease containing an unexercised renewal option; it requires a concluded, bilateral,
mutually binding agreement for a future tenancy.
-
Protects statutory renewal choices: a business tenant faced with an “upward” contractual renewal mechanism (for example indexation above market)
is not deprived of the ability to seek a statutory renewal simply because the lease also offers an option route.
-
Drafting and risk allocation: landlords seeking to ensure non-1954 Act outcomes cannot assume that inserting an option clause achieves section 28 exclusion.
If exclusion is desired, parties must consider the proper statutory tools (e.g., contracting out under the 1954 Act procedures) rather than relying on section 28 by analogy.
-
Litigation focus in future cases: disputes are likely to turn on whether a document is truly a bilateral agreement for a future tenancy (with mutual obligations),
as opposed to a unilateral option or other contingent arrangement.
6. Complex Concepts Simplified
6.1 “Option to renew”
An option to renew is a contractual right held by the tenant to choose to take a further lease if specified conditions are met (typically serving notice and complying with conditions).
Until the tenant exercises it, the tenant is not bound to take the renewal lease.
6.2 “Unilateral (‘if’) contract” vs “bilateral (synallagmatic) contract”
A unilateral “if” contract creates a right for one party that becomes enforceable against the other only if a specified act occurs (e.g., the tenant serves a valid notice).
Once exercised, the arrangement becomes bilateral: both parties owe enforceable obligations (landlord to grant; tenant to take).
6.3 What section 28 is doing
Section 28 removes Part II protection where the parties have already made a binding deal for a future tenancy starting on a specified date.
The Court held that an unexercised option is not that kind of deal, because it does not (yet) bind the tenant to take the future lease.
7. Conclusion
[2026] EWCA Civ 575 establishes that a lease is not excluded from Part II of the Landlord and Tenant Act 1954 merely because it contains a tenant’s option to renew.
For section 28 to apply, there must be a mutually binding and enforceable agreement for the grant (and taking) of the future tenancy.
The decision strengthens doctrinal clarity around options as unilateral arrangements until exercise, and preserves the statutory protection for business tenants unless and until
the statutory exclusion conditions are truly met.