/>iOn 10 July, the UK Government introduced the English Devolution and Community Empowerment Bill (the Bill) to Parliament, which unexpectedly includes a proposed ban on upwards-only rent review clauses in new commercial leases in England and Wales.
These clauses have long been a central feature of the commercial leasing market, providing landlords with some degree of certainty over rental income throughout the lease term.
In this GT Alert, we outline the Bill’s key provisions, explore the potential implications for investors and landlords, and consider what the next steps might be as the legislative process unfolds.
What Is Being Proposed?
The Bill proposes to prohibit rent review clauses that only allow increases (upwards-only rent reviews) or guarantee a minimum increase (minimum uplift mechanisms) in new commercial leases, where the potential rent increase cannot be determined at the start of the lease and will be calculated based on a variable upwards-only factor, such as open market value, an inflation index, or tenant turnover review.
Exceptions
The Bill provides exceptions for fixed or stepped rent increases that are specified or can be determined at the start of the lease, as well as clauses that allow rent to be reviewed both upwards and downwards.
The Government would also have the power to make additional exceptions and make transitional arrangements through secondary legislation. The explanatory notes to the Bill specify that this may include exceptions to allow for caps and collars to be used within specified parameters. As the Bill is currently drafted, collars would be prohibited, and the explanatory notes acknowledge that collars could be used to circumvent the proposed ban, as the collar could be set at the same level or higher than the current rent.
Scope of the proposal
The proposed ban would apply to all new commercial leases in England and Wales that fall under Part II of the Landlord and Tenant Act 1954 (1954 Act), including leases that are within or contracted out of the 1954 Act’s security of tenure provisions.
The ban would also apply to all renewal leases where the tenant has security of tenure under the 1954 Act, whether the renewal is arranged through the courts or agreed between the parties. It would also apply to ‘put options’ where a landlord can require a tenant to take a new tenancy.
However, the proposed ban would not affect existing leases and would only apply to new leases and renewals granted after the legislation came into effect. Leases granted under contracts entered into before the ban comes into force would also be excluded.
Anti-avoidance provisions
The Bill includes anti-avoidance provisions to prevent mechanisms that might attempt to circumvent the proposed ban, including side arrangements outside the tenancy that seek to require the tenant to pay increased rent.
In addition, even if the lease stated otherwise, under the proposed ban the tenant would be able to initiate a rent review if the landlord did not. The explanatory notes to the Bill clarify that if only the landlord can trigger the rent review, they might choose not to, keeping the rent unchanged even if the market has declined.
Unenforceability
If the proposed ban comes into effect, any upwards-only rent review clause included in a new lease (including any renewal lease where there was a previous upwards-only rent review) would be unenforceable, and the new rent would be set according to the method specified in the lease. This means the rent could increase, decrease, or stay the same, depending on the outcome of that methodology.
Background
The Government’s impact assessment for the Bill states that banning upwards-only rent review clauses will help curb perceived landlord manipulation, create a fairer environment for tenants—particularly small businesses—and promote more efficient, thriving high streets. The Government argues that upwards-only rent review clauses have kept rents artificially high, especially during economic downturns, and have contributed to business closures and the decline of local retail areas. They highlight ongoing concerns about power imbalances and information gaps between landlords and tenants, especially where small businesses may lack legal advice.
Implications for Landlords & Investors
The provisions were introduced without prior industry consultation despite representing a significant change to the risk profile for landlords and investors. The proposed ban removes a mechanism that previously provided landlords and investors with a degree of protection against market downturns, which may have implications for income stability and long-term financial planning.
In the absence of guaranteed minimum rental levels throughout the lease term, there is potential for initial rents to increase to reflect the possibility of downward reviews. Some landlords may consider favouring shorter-term leases, often contracted out of the 1954 Act, in order to set market rent at each renewal. There may also be an increase in leases incorporating fixed increases at traditional review intervals, combined with break rights or top-up turnover rent, as parties explore alternative methods of providing certainty. These developments could result in more complex lease negotiations and potentially longer void periods, particularly if tenants choose to delay committing to new leases in a more flexible market.
The proposed removal of rent certainty might also have wider implications for debt financing and investment, including for overseas investors who have historically been attracted to the UK market by predictable, upwards-only cash flows. The Government’s own impact assessment notes that the effect on investment appetite remains uncertain. At present, it is unclear when any financial impacts might first be felt by landlords, how many businesses might be affected, or the extent of any potential changes to rental revenue. As a result, investors and landlords may wish to factor this uncertainty into their future planning and sensitivity analyses.
Next Steps
The second reading of the Bill is currently due to take place on 2 September after the Government’s summer recess. The Bill is at an early stage, and significant debate and discussion is expected in the coming months. Industry reaction has been quick and polarised as between landlords, institutional investors and small business groups. The Bill may well be amended as it progresses through the parliamentary process, which could take six to 12 months. At present, there is no information on when any ban on upwards-only rent reviews might come into effect.
