Upward-only rent reviews update

The Government’s proposed ban on upward-only rent reviews, part of the English Devolution and Community Empowerment Bill, has reached the House of Lords committee stage.

During the Public Bill Committee stage, some MPs raised concerns about the Government’s proposal, warning it could deter commercial investment and create unintended consequences in sectors such as logistics. Mike Reader MP highlighted that Ireland introduced protections alongside bans, while David Simmonds MP argued the change could undermine contractual freedom and lead to complex workaround leasing structures. The Government pushed back, insisting the ban is overdue, internationally standard, and essential for fairer, more flexible leasing that supports small businesses and high streets, stressing that landlords still have viable alternative rent setting tools and that the existing system is illogical and harmful.

Intended to support small businesses and revive high streets, the ban has sparked wider debate and criticism due to limited consultation and potential impacts on investors. Upward-only rent reviews have long underpinned confidence in commercial leases, and their removal could have significant implications for landlords and their portfolios.

The ban will apply to all review mechanisms, and capture attempts to circumvent through methods such as side letters but will not be retrospective. It will only affect tenancies entered after the Bill’s implementation. Stepped or fixed rental uplifts will remain permitted. Recent amendments to the draft Bill address inconsistencies between leases and subleases and clarify that tenancies where the tenant is not in physical occupation will also be captured.

Whilst revitalising town centres is a worthy aim, blanket legislation risks unintended consequences in a complex market. Former Treasury analyst Martin Beck estimates the removal of upward-only rent reviews could reduce commercial property values by 15%, equating to an £11bn loss across the sector. Beck also warns of reduced investor appetite for large-scale developments, such as data centres, where guaranteed returns are critical.

Potential knock-on effects are not just limited to the landlord community. A two-tier market may emerge, disadvantaging incumbent occupiers compared to new tenants until renewal. Although average lease lengths have fallen below seven years across all sectors segments of the market incurring significant fit-out costs often favour longer terms. These occupiers could remain outside the new regime for years, unable to align with evolving norms.

How might the market respond:

• Shorter lease terms and increased prevalence of contracted-out leases.
• Landlords having to balance guaranteed returns against maximising rental value for new developments, with potentially reduced investment and lending.
• Greater reliance on alternatives to market reviews, such as stepped rents, fixed increases, or index-linked mechanisms (e.g., CPI + 1%).

Supporting commercial occupiers is welcome, but investor and landlord needs must also be considered. More targeted relief would likely be a better solution than a one-size-fits-all approach, minimising uncertainty and disruption in the market at a time when confidence is paramount.

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