Proposal by the government to eliminate exclusive upward rent increases in fresh commercial leases within England and Wales
The UK government's recent proposal to ban upward-only rent reviews (UORR) in most new business leases is set to significantly impact the commercial leasing sector.
The primary objective of the ban is to support small businesses and high-street retailers by preventing rent hikes that can become unaffordable during economic downturns. By introducing the possibility of rent decreases in addition to increases, the measure aims to reflect market conditions more accurately.
However, the ban may lead to uncertainty and reduced investment confidence, as landlords and investors could face lower returns due to potential rent reductions. This could result in landlords pricing in higher fixed rents on the grant of a tenancy to negate the impact of the abolition.
The proposed ban applies to new leases and renewals, covering premises occupied by business tenants, regardless of whether they have security of tenure. It covers market-rent reviews, index-linked reviews, turnover-based rent, or any formulaic clause where the final rent is not predetermined. Fixed, stepped, or predetermined rents are excluded from the ban, with agricultural leases being the only specified exception under future regulations.
The anti-avoidance provisions in the bill are broad, making any agreement void if the tenant is required to pay a higher rent through contravention of the ban. The ban will influence future lease agreements by preventing the inclusion of UORR clauses. Tenants will gain more control over the rent review process, with the power to initiate a rent review or take action to enable it to operate more effectively.
The ban may impact the terms and costs of financing for commercial development and investment acquisitions. Investors might consider other avenues for income such as operational assets or residential development. The measure is included in the English Devolution and Community Empowerment Bill.
It is important to note that the ban does not affect existing contracts. On July 10, 2025, the UK government introduced this proposal, which is expected to impact a wide range of sectors, not just small and high-street businesses. The proposal has been met with opposition from investors due to its potential breadth and depth. Challenges from landlord and investor stakeholders are highly likely.
Regulations may provide for exceptions, but these are expected to be very limited. The government acknowledges that the measure may engage aspects of human rights legislation. If the ban is enforced, upwards only rent review provisions within in-scope leases will be unenforceable, and the new rent will be determined by the methodology provided for in the lease, with any "upwards only" ratchet removed.
The bill also introduces a parallel prohibition on contractual "put options" entered into after the ban comes into force, which require tenants to take a new lease of the premises they currently occupy. This ban aims to prevent landlords from using such options to bypass the UORR ban.
In conclusion, the proposed ban on upward-only rent reviews is a significant move that aims to support businesses while potentially altering the dynamics of the commercial leasing market. The full impact of the ban is yet to be seen, but it is clear that it will bring about changes in the way rent reviews are conducted and potentially impact investment decisions in the commercial property sector.
- The ban on upward-only rent reviews could prompt investors to explore other income avenues, such as investing in operational assets or residential development, given the potential impact on returns in the commercial real-estate sector.
- With the power to initiate rent reviews and prevent the inclusion of upward-only rent review clauses in lease agreements, this financing measure may lead small businesses and high-street retailers to have more control over their financial investments related to real-estate.
