Understanding the Government’s proposal to ban upwards only rent reviews in commercial leases

A major shift in the commercial leasing landscape may be on the horizon. As part of broader reforms to boost the UK’s struggling high streets and create a fairer rental market, the Government has proposed to ban upwards only rent review provisions in new business tenancies in England and Wales.

The ban aims to ‘make commercial leasing fairer to tenants, ensure high street rents are set more efficiently, and stimulate economic growth’. However, this may at the same time make business leases a less attractive investment for current and prospective landlords, so there is a difficult balance to be struck.

What are upwards only rent reviews?

An upwards only rent review clause is a lease provision that allows rent to increase at specified intervals, typically every 3 to 5 years, but being no less than the initial rent, regardless of market conditions, either in line with a statistical index or based on hypothetical lease market assumptions and disregards.

These clauses have long been the market standard, offering landlords predictability and long-term income security. However, the Government’s view is that these clauses lead to higher rents during economic downturns, resulting in lower profits for tenants and a risk of higher prices for consumers.

The proposed change

Under proposals introduced in the English Devolution and Community Empowerment Bill, upwards only rent reviews will be banned in the vast majority of new commercial leases.

Instead, fixed increases, upwards or downwards open-market rent reviews, or indexed rent reviews (e.g. RPI or CPI-linked) will be required. The new rent may be higher, lower or the same as previous rent, but crucially cannot be drafted as upwards only.

Key points of the reform:

• Applies to new leases only (existing leases are not affected). It will however catch any leases renewed after the Bill comes into force.
• Aims to rebalance power between landlords and tenants, especially on the high street.
• Implementation details are yet to be confirmed however the Bill contains robust anti-avoidance provisions.

Legal and commercial implications if the ban is implemented

The Government are hopeful that the ban will lead to fairer rent reviews for tenants and economic growth, particularly on UK high streets, meaning tenants will hopefully be interested in taking more long-term leases, bringing more stability to the high street.

Landlords will naturally be concerned about a loss of profit and may in turn seek to agree stepped rent increases to maintain their income stream, which are not prohibited by the Bill. Equally, there may be an increase in shorter leases without rent review provisions, or an increase in landlord break rights being exercised so they can renegotiate the rent with a new tenant.

Both landlords and tenants should keep an eye out for updates on this proposal and start to consider how this ban may impact them if implemented, particularly where there is lender involvement due to the potential impact on future valuations.

How we can help

At Leathes Prior, our Commercial Property Team advises landlords, tenants, and investors across all sectors. Whether you’re negotiating a new lease, reviewing your portfolio, or planning ahead for legislative change, we can provide clear, commercial legal advice tailored to your needs.

If you’d like to understand how this change might affect you, or if you have any other Commercial Property queries, our Commercial Property Team will be happy to assist via info@leathesprior.co.uk or by telephone on 01603 610911.