29/07/2025
On 10 July 2025, the English Devolution and Community Empowerment Bill introduced a significant intervention to long-established market practice by including a provision to “ban” upwards-only rent review clauses in new commercial leases.
How might the ban impact real estate investment?
Upwards-only rent reviews underpin why business leases are attractive to investors and lenders, with a stable guaranteed cash flow over the lifetime of a lease. Whilst it is relatively rare to have a falling market and a downwards trajectory in open market rents and inflation; nevertheless, they can happen. Abolishing the long established, upwards-only rent review threatens to undermine the business lease as a secure investment and lending model and to destabilise how commercial property is valued.
Views on the likely long-term impact are mixed but the lack of consultation prior to the Bill has created sector uncertainty which may damage investor sentiment in the short-term. Overseas investors in particular may seek to deploy capital into other jurisdictions away from UK PLC which would negatively impact development viability further at a time when financial viability is already stretched.
There is likely to be shift in valuation at the least until the market recalibrates with potentially market moves to shorter lease terms, the use landlord break rights and the increased use of stepped rents.
Investors may seek to move away from a lease model to the increased use of management contracts. Management contracts are common, for example, in the hotel sector and are growing in prevalence in the healthcare sector as a result of the influx of institutional capital in the market particularly from the US REITs.
What exactly is proposed and why?
The Bill proposes a ban on upwards-only and minimum uplift rent review clauses in new commercial leases. It is part of a broader effort to try to reinvigorate high streets by giving tenants greater financial certainty and negotiating power. The policy objectives are “make commercial leasing fairer for tenants, ensure high street rents are set more efficiently, and stimulate economic growth”.
At the time of writing, we remain to be persuaded that this ban will be able to fulfil its stated objectives of supporting high street businesses, against a wider backdrop of high business rate, low usage of upwards-only rent reviews in the retail sector and ever increasing on-line shopping.
Will it apply to all leases?
No. As currently drafted, the ban only applies to new commercial leases whether or not they are contracted out of the Landlord and Tenant Act 1954. The provisions will not have retrospective effect and so will not apply to any leases that have been entered into before the Bill comes into force, nor any leases which are entered into pursuant to an agreement for lease which has been dated before the ban. Note that it will apply to any renewal leases post the Bill coming into force, whether a statutory or independent renewal. Any extension to a lease would be caught by the provisions of the Bill.
There is provision for regulations to be made creating exceptions. The Government’s explanatory notes suggest this might allow for caps and collars to be used in a commercial lease, but no detail has been proposed at this stage.
Can a landlord opt out or just choose not to operate a rent review provision if the rents wouldn’t increase?
As the draft legislation currently stands, you cannot opt out or contract out of the provisions. The proposed legislation includes wide anti-avoidance provisions to prevent this. Tenants will have the right to take action to trigger a rent review so that a landlord cannot hold on to a higher rent even if the market falls.
The Bill also prohibits the use of a “put option” whereby the landlord can require the tenant to take a renewal lease at the higher of market rent and passing rent, rather than having a rent review. Agreements for the tenant to make a payment in respect of any difference between the existing and new rent following rent review are also void pursuant to the Bill.
What are the next steps and timings?
The Second Reading of the Bill in the House of Commons is scheduled for 2 September 2025, following which it will go through further readings and committee review before it becomes law. The British Property Federation (BPF) and other industry bodies are currently formulating responses to the Government. Bevan Brittan LLP is contributing to the BPF’s response and this work is being led by Sarah Skuse.
