Property law update: the compensation cliff edge

April 2026 rates revaluation and section 25 lease terminations.

For clients who have commercial property portfolios, as the dust has settled on last year’s budget, now is the time to consider whether the changes to Business Rates should guide plans for lease terminations.

From time to time most landlords will need to take steps to terminate some leases, whether that be to facilitate redevelopment, or to enable their own occupation etc. Some commercial tenants will benefit from the protections in the Landlord and Tenant Act 1925, which provides that where a landlord terminates a commercial lease through no fault of the tenant, the landlord is liable to pay compensation to the tenant. Compensation is calculated based on a formula underpinned by rateable value. Here is the trap! The key date in the legislation is the date of service of the landlord’s termination notice (a section 25 notice) and it is from this date that the compensation is calculated, not the date the lease ends. It is open to a landlord to serve such notice up to 12 months, or as little as 6 months, prior to the proposed termination date. That gives considerable scope to adjust the timing, even where a landlord does not want the premises back just yet.

Take as an example a single floor in a Leeds centre office building:- at present the rateable value is £455,000. With effect from 1 April 2026 that rateable value is set to rise to £625,000. The compensation payable will be 1 x the rateable value for tenants who have occupied for less than 14 years and 2 x the rateable value for tenants who have occupied for 14 years or more. Therefore, the possible saving by service of the Section 25 notice prior to 1 April 2026 could be as much as £340,000 for that property, simply by early service of the notice.

Of course, there are lots of factors at play in lease termination and the timing must be right in other respects, but, if a landlord is otherwise ready to terminate a lease on or before 31 March 2027 (i.e. giving the maximum 12 months’ notice), then there could be a huge benefit of serving the notice before 1 April 2026, so as to fix the compensation at the current rating valuation.

We suggest that any landlords with potential terminations on the horizon should review their portfolios now, with a view to considering whether they have any properties where this saving could be possible.

If you would like to discuss any aspect of this article further, please contact the Property team on 0113 244 6100.

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The information in this article is necessarily of a general nature.  The law stated is correct at the date (stated above) this article was first posted to our website.

Specific advice should be sought for specific situations. If you have any queries or need any legal advice, please feel free to contact Wrigleys Solicitors.