Commercial Leases: The 1954 Act and Rent Review Reform

Commercial leases in rural areas are evolving. As farms and estates diversify into new income streams - from farm shops and offices to repurposed agricultural buildings and holiday lets - the rules governing these leases, including potential reforms are gaining renewed significance.

A clearer understanding of the legal and practical considerations underpinning commercial leases is becoming increasingly important. Proposed changes could significantly affect how leases are structured, renewed, and reviewed, as detailed below.

The '54 Act

The Landlord & Tenant Act 1954 provides business tenants with security of tenure - the right to remain in occupation at the end of a lease and request a new lease on broadly similar terms. Landlords can only refuse renewal on limited statutory grounds, such as redevelopment or owner occupation.

The Law Commission launched a consultation in 2023 to explore potential reforms to reflect modern leasing practices. As of June 2025, an interim statement has been released. Key areas under review include:

1. Contracting Out

Landlords and tenants can currently agree that a lease will not benefit from the Act's protections - a process known as "contracting out". The Commission has provisionally concluded that this model should be retained, preserving choice for both parties.

2. Short Leases

Currently, even leases as short as six months may attract statutory protection. The Commission is considering raising the threshold, potentially to two years, which would exclude very short agreements from security of tenure.

3. Renewal Procedure

The statutory renewal process is often described as costly and technical. Proposed reforms could streamline notice periods, timetables, and court involvement, reducing expense and delay.

4. Compensation on Redevelopment

When landlords oppose renewal on redevelopment grounds, tenants are entitled to compensation based on rateable value. The Commission is reviewing whether these formulas remain fair and whether modernisation is needed.

5. Overlap with Agricultural Tenancies

Agricultural tenancies will remain excluded from the 1954 Act. However, the boundary between commercial and agricultural use - such as farm shops or diversified business ventures - can be blurred, and clearer statutory definitions may be required.

Implications for stakeholders:

For tenants, retaining security of tenure continues to provide stability, while changes to short leases may influence short-term agreements.

For landlords, streamlined procedures could reduce administrative costs, and the retention of contracting-out maintains flexibility.

Rent Review Reform

Alongside the 1954 Act review, the English Devolution and Community Empowerment Bill (July 2025) proposes a ban on upwards-only rent review clauses. These clauses have long ensured predictable rent increases, providing income security for landlords and investors.

The government argues that banning them will support SMEs and retailers, particularly during economic downturns. The ban will apply to new leases and renewals, with anti-avoidance measures allowing tenants to trigger reviews if landlords delay.

Potential considerations:

Tenants: May see rent adjustments more closely aligned with market conditions.

Landlords: May respond with initial rents, lease terms, or review structures tailored to new market conditions.

Investors and lenders: Adjustments to rent structures may influence financial planning, lease terms, and investment strategies.

Looking Ahead

As commercial activity in rural areas grows, these legislative and policy changes are set to reshape how farms and estates agree and manage leases, balance flexibility, and protect investment. Staying informed on both the 1954 Act reforms and rent review changes will be essential for landlords, tenants, and rural businesses navigating this evolving landscape.