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If you're a corporate occupier negotiating a new lease, you might soon have more room to manoeuvre on rent than ever before. The government has announced plans to ban upward-only rent reviews in new commercial leases in a move likely to spin the way corporate occupiers (and investors and landlords) approach their real estate deals.
This is a plain-English, practical guide where we will provide a snapshot of what's changing, why it matters and how you can prepare. We'll give you the context, highlight the practical implications, and help you plan your next steps as the law evolves. This is intended be part 1 of a series of articles on this subject matter, to be circulated as the issue evolves and the Bill potentially becomes good law.
What's on the table and why does the government care?
The headline proposal is a statutory ban on upward-only rent reviews for new commercial leases in England, with the details and timing to be confirmed through the English Devolution and Community Empowerment Bill (Devolution Bill). The government's stated aims are to support high street resilience, rebalance bargaining power between landlords and tenants and drive regional growth.
Stakeholders (key landlord / landowner / investor think-tank) have been quick to weigh in, pointing at not being consulted. A recent supplication by the stakeholders for judicial review has been refused. Occupiers generally welcome the prospect of greater flexibility and downside protection. Landlords and lenders, on the other hand, warn that the change could impact property valuations, debt covenants and investment appetite. Specialists expect a shift towards indexation, caps and collars and turnover-based rent reviews. There's also a precedent from Ireland, where a 2010 ban nudged deals towards indexation and turnover rents, though downward resets were often limited by the use of floors or benchmarks in drafting. Part 2 in this series will look to explore how successful this approach has been in Ireland and what the property industry in England and Wales can learn from this.
How will deals change?
Expect to see more index-linked reviews (such as CPI) with collars and floors and annual compounding. Fixed uplifts or stepped rents may be used to lock in growth, while turnover rents could come with higher base rent floors. Landlords may also reprice incentives, offering fewer rent-free months or fit-out contributions and look to rebalance risk elsewhere. Think tighter user or alienation clauses, stricter repair obligations and broader service charge scopes. Shorter lease terms or more frequent reviews could also become the norm to manage uncertainty and protect valuations.
For occupiers, the counterplay will be to push for upward and downward open-market reviews, or pure indexation with sensible caps and minimal (if any) collars. If collars or floors are unavoidable, occupiers should negotiate for lower base rents or enhanced incentives. Turnover rents can be attractive if they come with a lower base, transparent audit rights and break options. It will be important to guard against disguised floors such as minimum rent assumptions.
How can you stay ready?
The Bill is not yet law and will not apply retrospectively, so there's little immediate action to take. However, now is the time to plan your strategy for when the law comes into effect. Consider whether you can delay renewals or new leases to benefit from the new regime. Develop a rent review mechanics playbook for future negotiations, including your preferred review structures and fallback positions. Monitor legislative progress and be ready to update heads of terms, AFLs, and renewal strategies once the law is in force. Brief your internal teams and advisors so you can move quickly when the changes take effect.
Leasehold reforms and the bigger picture
With the introduction and implementation of The Leasehold and Freehold Reform Act 2024, we are starting to see more clearly the Parliament's direction of travel. There is a renewed political focus on commonhold, with increased leaseholder protections by increased transparency between landlord and tenants and rising professional standards amongst managing agents. We're likely to learn more once details around the ban on upwards-only rent reviews see the light of day.
Q&A
When would the ban start? Will there be transitional rules?
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The ban is expected to apply to new commercial leases granted after the commencement date, which will be set by the Devolution Bill. Transitional rules are not yet published, but deals completed before the law comes into force are likely to be unaffected.
What exactly is an "upward-only" rent review? Are collars and floors banned?
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An upward-only rent review is a mechanism where rent can only stay the same or increase at review and never decrease. It's not yet clear if index-linked reviews with a 0% floor or turnover rents with a base rent floor will be caught by the ban. This will depend on the final drafting of the legislation.
Do turnover rents get caught by the ban?
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If a turnover rent includes a base rent that cannot fall, or a minimum threshold, it may be considered "upward-only." The government is expected to clarify this in the legislation or guidance.
What about agreements for lease (AFLs) exchanged before, but completed after, the ban?
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This is a grey area. If the lease is granted after the ban comes into force, it may be caught, even if the AFL was signed earlier. Parties may want to include conditional drafting or consider timing completion accordingly.
Are 1954 Act renewals considered "new leases" under the ban?
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It's not yet clear. If the renewal lease is treated as a new grant, it could be subject to the ban. Watch for further guidance on this point.
Could variations to existing leases trigger the ban?
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Possibly. If a variation is substantial enough to be considered a surrender and regrant, the new lease could fall within the ban. Legal advice is recommended before making significant changes.
Will the ban apply across the UK?
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The current proposal is for England and Wales only. Scotland and Northern Ireland are not included at this stage.
What lessons can be learned from Ireland's experience? Will rents actually fall?
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In Ireland, the ban led to more index-linked and turnover rents, but landlords often inserted floors or benchmarks to limit downward movement. There was no dramatic fall in rents, but greater flexibility for tenants.
What's the impact on lending, valuations, and covenant compliance?
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Landlords and lenders are concerned that the removal of upward-only reviews could reduce property values and affect loan covenants. Tenants should be aware that landlords may seek to rebalance risk elsewhere in the lease.
What practical drafting flags should occupiers watch for?
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Look out for disguised floors, minimum rent assumptions or review mechanisms that could be considered upward-only in effect. Ensure your legal team reviews all rent review clauses carefully to avoid accidental non-compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
