Why farm landlords need to review commercial leases

Farms with commercial lets need to review their approach to leases in advance of a ban on upwards-only rent reviews which is likely to come into effect next year.

The ban is part of the English Devolution and Community Empowerment Act 2026 which became law in late April and affects only new commercial leases in England and Wales.

See also: Top tips for successful commercial lets on farm

The change represents one of the most significant shifts in commercial leasing practice in a generation and is going to catch a lot of people out, says Sarah Potter, a partner at HCR Law.

It will ensure that rents can move both up and down in response to market conditions, rather than under most current commercial lease structures where once a rent is set or reviewed upwards, it can’t fall.

How landlords are affected

The change brings new risks for landlords as it removes a guaranteed minimum income, making rental income streams less predictable, says Sarah, who advises several farming businesses with commercial lets.

This could in turn affect property valuations and lending decisions.

Farm-based landlords with commercial lettings, for example to storage or retail businesses, offices, workshops, health and fitness facilities or pet grooming services, need to review their leases in advance of the change in the law, advises Sarah. 

“Very often leases are written by the landlord themselves or bought off the shelf.

“They are not always as sophisticated as they need to be, so the introduction of this change is a good opportunity to review and sharpen things up,” she says. 

“The upwards-only ban is not in force for new leases now so it may be possible to use a break clause to end a lease and issue new terms, which for the time being can include upwards-only terms.”

Responses

To counter the financial uncertainty introduced by the ban, landlords may look to increase headline rents for new leases and/or reduce incentives such as rent-free periods, suggests Sarah.

Also, shorter leases of three- to five-year terms may become more popular, with rents reset at each new term.

Advisers says that alternative rent review structures for new leases are likely to be used more widely once the ban in place, for example fixed or stepped rent increases, which fall outside the scope of the ban.

Index-linked reviews are another option.

The reform offers greater protection for tenants against paying above-market rents during economic downturns, says Sarah.

If market rents fall, tenants will be entitled to a downward adjustment at their next review date.

In turn, tenants are advised to check expiry or renewal dates and consider whether to negotiate two-way rent review clauses in advance of the legislation, and to look at how alternative rent structures such as fixed, stepped or index-linked reviews might work for them.