The End of Upwards-Only Rent Reviews? What the New Bill Means for You…

For decades, the “upwards-only” rent review has been a standard foundation in UK commercial property leases. It provided landlords with guaranteed income security and gave institutional investors and lenders the predictability they require.

However, this is changing. Under the government's English Devolution and Community Empowerment Bill, we are seeing a significant shake-up of commercial leasing with the proposed ban on upwards-only rent review clauses. The bill is presently progressing through Parliament, with implementation expected between 2027 and 2028.

Currently, many commercial leases include a clause stating that at the time of review, the rent will either increase to the current market level or stay the same—it can never go down. The new legislation seeks to outlaw this practice for new leases. If passed, rent reviews would become "market-reflective," meaning if the market value of the property has dropped, the rent could decrease.

The reform is designed to revitalise the high street and support small businesses. By allowing rents to fluctuate naturally with the economy, the government aims to:

• Reduce the risk of business failure during economic downturns.
• Create a fairer playing field between landlords and tenants.
• Modernise the Landlord and Tenant Act 1954, which many argue is no longer fit for a post-pandemic retail world.

While this may seem like a challenge to valuation stability, it is not all bad news. Landlords should prepare by:

• Diversifying rent review formula such as "stepped rents" (pre-agreed annual increases) or turnover-based rents to provide more certainty.
• Granting shorter lease terms to mitigate the risk of a market dip, many landlords may move away from long 10-year commitments in favour of 3- or 5-year terms.
• Focusing on the quality of the property as properties with high energy efficiency (EPC B or C) will hold their value better, protecting the rent floor.

This reform represents a significant win for tenants as their overheads will more accurately reflect the economic location of the property and new tenants will have more leverage when discussing heads of terms for leases granted after the bill comes into force.

It is important to note that the change is not expected to be retrospective. If you are mid-term in a lease with an upwards-only rent review clause, that clause will likely remain valid until the lease expires or is formally varied.

Whether you are a landlord granting new leases or a tenant planning your next move, getting the rent review clause right in your next lease is more important than ever.

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If you would appreciate some assistance with this, contact our Commercial Property Partner, Alexandra Karrouze