The upcoming business rates revaluation on 1 April 2026 could affect the amount of statutory compensation landlords must pay to business tenants. Depending on whether the property’s rateable value is expected to rise or fall, timing will be critical. The following article explains what you need to know and when you need to act to avoid costly mistakes. 

When does statutory compensation apply?

If the property is occupied by a business tenant and its lease is protected by the Landlord and Tenant Act 1954 (LTA 1954), it has the right to apply for a new lease when the current one ends.  The landlord may oppose the renewal on either “fault” grounds or on “no fault” grounds, or by using combination of both. 

“No fault” grounds include:

• the landlord intends to re-let the whole for substantially more rent than the aggregate of the rent obtainable on re-lettings of part (ground (e));
• the landlord intends to demolish, reconstruct or carry out substantial construction work and could not reasonably do that without obtaining possession of that part of the building the tenant occupies (ground (f));
• and the landlord intends to occupy the property for its own business purposes or as a residence (ground (g)).

“Fault” grounds include persistent late rent, disrepair, other substantial breaches of covenant, other reasons connected with use or management of the property, or offering suitable alternative accommodation.

If the landlord opposes the renewal on only “no fault” grounds, the tenant may be entitled to compensation.  

If the landlord opposes the renewal on “fault” grounds, either alone or in conjunction with a “no fault” ground, no compensation may be payable. 

How is compensation calculated?

• Standard rule: Compensation equals the property’s rateable value.
• Long occupation: If the tenant (and any predecessor in the same business) has occupied for 14 years or more, compensation is twice the rateable value. This period is counted backwards from the termination date in the landlord’s section 25 notice or the tenant’s section 26 request.

Can compensation be excluded by agreement?

Yes, but only in very limited circumstances. Landlords and tenants should take advice on whether these exclusions apply, even if they appear in the lease. 

The business rates revaluation (1 April 2026)

Current rateable values took effect on 1 April 2023, based on values at 1 April 2021. The next revaluation will apply from 1 April 2026 based on values at 1 April 2024. Some properties will see reductions, while others may face significant increases. You can check draft rateable values on the https://www.gov.uk/introduction-to-business-rates/revaluation.

Which notices apply?

Landlords:
To end a protected lease and oppose renewal, serve a section 25 notice stating the ground(s) of opposition and a termination date. This date must be at least six months and no more than 12 months after service and can be the contractual expiry date or later.

If the tenant has already served a section 26 request, the landlord cannot serve a section 25 notice. Instead, it must serve a counter-notice within two months of receiving the section 26 request, stating its ground(s) of opposition.

Tenants:
To request a new lease, serve a section 26 request not more than 12 months and not less than 6 months before the proposed start date. This can be before or after the contractual term ends, provided the tenant remains in occupation under the LTA 1954. The earliest start date that can be specified in the request is the contractual expiry date.

Which rateable value applies?

Compensation is based on the rateable value at the date the landlord serves its section 25 notice or counter-notice. If that date is on or after 1 April 2026, and the new valuation list shows a higher rateable value, compensation will increase.

Tactical timing

For landlords:

• If the rateable value will increase, consider serving notice before 1 April 2026.
• If the rateable value will decrease, consider serving notice on or after 1 April 2026.

For tenants:

• If the rateable value will increase, serve a section 26 request after 1 April 2026.
• If the rateable value will decrease, serve the request before 31 January 2026.

Landlords and tenants should also be mindful of timing especially if the tenant is approaching 14 years occupation when compensation will be doubled. 

Act early

Compensation is just one factor when renewing or ending a lease under the LTA 1954. These processes are complex and time-sensitive and this article provides a high-level summary only. If you are a landlord hoping to oppose a lease renewal and minimise your exposure to payment of compensation, or if you are a business tenant hoping to achieve maximum compensation, you should seek legal advice well before these key dates.