Could we see the end of upward-only rent reviews?

The Government’s English Devolution and Community Empowerment Bill is progressing through Parliament.

Buried within this Bill is a proposed ban on upward-only rent reviews in commercial leases.

As someone who spends a lot of time advising on commercial leases, we have seen first-hand how rent review clauses impact negotiations between landlords and tenants and we are interested in seeing how this Bill progresses.

What is an upward-only rent review?

An upward-only rent review currently guarantees that the rent will never fall below the level previously set even if the market weakens.

For landlords, this has been seen as a way of protecting their income and maintaining investment values.

However, for a lot of tenants, it can feel like the provisions unfairly expose them to higher costs, particularly in tougher markets where open market rents may fall.

What could the English Devolution and Community Empowerment Bill change?

The Bill proposes that for new leases granted to business occupiers, rent reviews based on market value or turnover would no longer be upward-only.

Instead, rents could move up or down in line with the market at the review date. Stepped rent increases that are set out in advance would remain unaffected under current plans.

The proposed Bill is not retrospective, which means existing leases will remain subject to their current terms and any upward-only rent reviews already in place will continue.

That said, tenants entering into new leases after the legislation passes will also gain the right to trigger rent reviews on the specified date, preventing landlords from delaying and then backdating an increase with interest.

What’s still unclear about the Bill?

What is not yet clear is the treatment of capped and collared rent reviews, where minimum and maximum figures are already agreed.

This leaves open questions for those drafting new leases.

How might practice evolve?

We suspect many landlords will respond by offering shorter leases without review clauses, and in some cases by excluding security of tenure rights under the Landlord and Tenant Act 1954.

That approach would allow rents to be reset more regularly, giving landlords greater control. The trade-off is that tenants may hesitate to commit long-term if flexibility is weighted too heavily in the landlord’s favour.

Landlords should be thinking now about how this could affect rental income and property values, while tenants should be ready to use the changes to manage their costs more effectively.

The Bill still has a way to go in Parliament, so nothing is set in stone. However, what we do know is that lease negotiations are likely to become more complex.

If you are a landlord or a tenant with commercial premises, now is the time to review your position.

Taking advice early will help you understand how the proposed changes could affect your lease strategy and give you options rather than surprises.

Our Commercial Property lawyers are here to help on enquiries@attwaters.co.uk or 0330 221 8855