Mustafa Sidki is a partner at Thackray Williams, a Southeast law firm, where he specialises in litigation and dispute resolution.
Lease conversions are likely to become a growing trend in 2026, owing to the combined pressures of a persistent housing shortage and declining demand for office and retail space.
Legal routes to challenge restrictive covenants are creating new opportunities for landlords and investors who want to reshape their portfolios. But they also provide openings for tenants seeking to convert long-term commercial leases into residential use.
Why lease conversions are on the rise
Town and city centres have seen a marked reduction in commercial property use since the pandemic, as businesses adapt to flexible working and online retail continues to dominate. At the same time, the housing crisis has intensified demand for residential accommodation. These factors have already led to the creation of nearly 96,000 new homes in England through conversions of commercial space.
It’s not just landlords who can unlock value. Tenants tied into long leases for premises that no longer make commercial sense are increasingly exploring ways to convert properties for residential use – even where leases prohibit it. At Thackray Williams, we’re seeing a notable rise in enquiries from both landlords and tenants seeking to overcome restrictive use clauses.
For landlords and investors, understanding the legal framework is essential – not only to defend commercial portfolios but also to identify opportunities to repurpose underperforming assets for better returns.
The legal route – the importance of Section 84
Restrictive covenants limiting use to commercial purposes can be modified or discharged by the Upper Tribunal (Lands Chamber) under Section 84 of the Law of Property Act 1925. While Section 84 is most commonly applied to freehold land, the Tribunal also has jurisdiction over leasehold interests – provided the lease was originally granted for more than 40 years and at least 25 years have expired.
Section 84 empowers the Tribunal to discharge or modify restrictive covenants when certain statutory grounds are met, including:
- Obsolescence: The restriction has become outdated due to changes in the property or neighbourhood
- Impediment to Reasonable Use: The restriction blocks reasonable use and either offers no substantial benefit or is contrary to public interest, with compensation available for any loss
- Consent: Beneficiaries of the restriction have agreed to its removal
- No Injury: Modification will not harm those entitled to the benefit
Applications require robust evidence, including planning reports and valuation assessments, to demonstrate that the proposed change aligns with development plans and delivers economic or social value.
Legal precedent
The landmark case of Shaviram Normandy Ltd v Basingstoke and Deane Borough Council [2019] UKUT 256 (LC) marked the first time the Tribunal exercised Section 84 powers on a leasehold interest. The tenant sought to convert a vacant, dilapidated office building – let on a 150-year lease – into 114 residential flats. Despite planning consent, the Council refused to allow the change under the lease.
The Tribunal ruled in favour of the tenant, finding that the restriction impeded reasonable use and conferred no practical benefit of substantial value on the Council. Key factors included the development plan, planning history and expert evidence comparing capital and rental values. The Tribunal concluded that residential use would significantly increase capital value, outweighing a slight reduction in rental income.
What this means for landlords and investors
Each case will turn on its facts, but common considerations include:
- Location and planning context
- Impact on capital and income values
- Effect on other properties in your portfolio
If you’re considering applying for a lease conversion – or opposing one – start by checking whether the lease meets the 40-year/25-year criteria. From there, expert advice is critical to assess prospects and avoid unnecessary costs.
With housing demand rising and commercial space under pressure, increased conversions through 2026 are inevitable. Early planning can help you turn potential disruption into strategic advantage – whether by unlocking value in underperforming assets or safeguarding your commercial holdings.
