The English Devolution and Community Empowerment Bill intends to introduce a ban on upward‑only rent review clauses (UORRs) in new and renewal business tenancies.
Historically and commonly, we have seen UORRs in commercial leases. The approach makes sure rent received will either stay the same or be increased on a formal rent review in accordance with the provisions within a lease.
Upwards only rent reviews seek to limit this. They have been criticised in the present climate because they can keep rents artificially high in downturns and have a negative impact on vacancy rates.
The government has expressed concern that UORRs negatively impact the viability of retail and hospitality businesses. By allowing rents to be reduced as well as increased, the government aims to use the ban in its campaign to prevent high street decline.
Under the Bill, UORRs cannot be enforced in any business tenancy granted after the provisions come into force, as well as in renewal leases, including statutory renewals under the Landlord and Tenant Act 1954.
Potential Impact of the Proposed Ban on UORRs
Whilst the ban may avoid artificially high rents in downturns the impact could be significant.
Tenants stand to benefit from rent movements that track market conditions, reducing the risk of being locked into higher rents during downturns. Under the proposals, tenants will be able to trigger rent reviews in circumstances where currently only landlords can do so, which will hinder landlords in delaying reviews in downturns to avoid rent decreases. However, there may be reduced tenant incentives following the ban as landlords offer fewer rent-free periods.
For landlords, the ban removes a valuation assumption and may destabilise projected income streams. This could be problematic for long‑term investors such as pension funds, which hold substantial commercial property assets whose structures will rely on the forecasting provided by UORRs. There may also be a negative impact on property values – allowing rents to fall may reduce capital values and affect refinancing. Less predictable rental income forecasting could also undermine funding models for new developments.
Timescale
Based on the Bill’s current position and typical legislative pacing, the earliest plausible timeframe for completion is by July 2026, depending on the level of challenge in the House of Lords, where the Bill is well advanced.
What We Can Do
Landlords are already considering alternative rent structures allowed under the Bill such as stepped rents, where increases are agreed at the outset. Setting higher initial rents, negotiating shorter lease terms and incorporating more breaks, may be other options.
Our Real Estate transactional and litigation teams are experienced in negotiating, resolving and documenting rent review agreements and can advise on measures to best place parties when the Bill is turned into legislation. If this is something you need help with then please get in contact with us.