News

A clear shift in residential possession law under the Renters’ Rights Act is creating an unexpected problem for commercial occupiers—particularly where a shop and a self‑contained flat sit within a single commercial lease. The new Section 8 grounds for possession simply do not cater for this mixed‑use scenario, leaving commercial tenants exposed when they need vacant possession.

The Renters’ Rights Act: A Brief Overview

The Renters’ Rights Act represents the most significant reform of England’s private rented sector in decades. It abolishes fixed‑term assured and assured shorthold tenancies and replaces the system with rolling periodic agreements, alongside a strengthened, expanded set of Section 8 grounds for possession.

See the gov.uk guide to the act here

The RICS have outlined ‘What’s happening, and when?’ here

Training and guidance emerging ahead of implementation emphasise that Section 8 will now be the sole legal route for regaining possession, following the abolition of Section 21 “no‑fault” notices.

The new Section 8 regime introduces updated and additional grounds—such as selling the property, landlord occupation, and student‑let provisions—but all are designed for residential landlords operating within the private rented sector.

Where the Act Falls Short: Mixed‑Use Commercial Leases

A growing concern arises where a shop and a self‑contained flat are let together under a single commercial lease—a common arrangement on many high streets.

Under the new legislation, the residential element (the flat) falls within the scope of the Renters’ Rights Act, while the commercial element (the shop) does not. Yet the Act provides no Section 8 ground that allows a commercial tenant—as opposed to a residential landlord—to recover possession of the flat.

This creates a structural mismatch:
– The commercial tenant is not the “landlord” for the purposes of the Act.
– The Section 8 grounds do not contemplate a scenario where a commercial occupier needs possession of a residential unit tied to their business premises.
– There is no applicable ground enabling the commercial tenant to require the residential occupier to leave.

In short, the Act leaves a gap: the commercial tenant has obligations requiring vacant possession of the whole demise, but no statutory mechanism to obtain it.

Why This Matters: Lease Renewals and Break Clauses

This gap becomes particularly problematic at two key moments:
1. Lease Renewal
At renewal under the Landlord and Tenant Act 1954, a commercial tenant may need to demonstrate that it can offer vacant possession of the entire premises. If the flat is occupied under a periodic residential tenancy protected by the Renters’ Rights Act, the commercial tenant may be unable to recover possession at all—placing them in breach of their obligations or jeopardising renewal negotiations.
2. Exercising a Break Clause
Break clauses in commercial leases almost always require vacant possession.
If the tenant cannot lawfully remove the residential occupier, the break may fail—leaving the tenant locked into the lease, potentially for years.

This risk is entirely new and arises solely because the Renters’ Rights Act does not recognise mixed‑use commercial arrangements.

Commercial Consequences: A Shift in Market Behaviour

Given the increased legal and operational risk, several market responses are likely:

1. Reduced Appetite for Flats Within Commercial Leases

Commercial tenants may become far less willing to take on residential accommodation as part of their demise. The inability to control possession of the flat introduces uncertainty that many occupiers will simply avoid.

2. Greater Need for Landlords to Manage Residential Units Directly

Landlords may need to:
– Let the flat separately under a compliant residential tenancy,
– Retain management responsibility, and
– Avoid tying residential units into commercial leases altogether.
This would shift risk and administrative burden back to landlords.

3. Downward Pressure on Commercial Rents

Where tenants do accept mixed‑use premises, they may demand:
– Lower rents,
– More flexible terms, or
– Indemnities and protections from landlords.
The increased risk profile will inevitably be priced into negotiations.

Conclusion

The Renters’ Rights Act is designed to strengthen protections for residential tenants, but its one‑size‑fits‑all approach to possession grounds creates unintended consequences for mixed‑use commercial properties. With no Section 8 ground enabling commercial tenants to recover possession of a flat included within their lease, the risk of being unable to deliver vacant possession at renewal or break is significant.
As the Act comes into force, both landlords and commercial tenants should review mixed‑use arrangements carefully. In many cases, separating residential and commercial elements—or restructuring management responsibilities—may become essential to avoid costly and unresolvable possession issues.