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The ban on upwards-only rent reviews in commercial leases is close to becoming law. The English Devolution and Community Empowerment Bill (which contains the ban) is in the final stages of its journey through Parliament. Royal Assent is expected before the current parliamentary session ends in late April or early May.
The ban will not take effect immediately and a commencement date will be set by future regulations. Market expectation is that this will not be before 2027.
An amendment introduced in the House of Lords means that the legislation will have a limited but important retrospective impact.
In this article, we consider the final form of the proposed ban on upwards-only rent reviews, when it is expected to come into force and the limited but important impact on renewal leases.
The ban is effectively in final form
Few substantive changes have been made to the rent review provisions since the Bill was first published. The core features of the ban remain as originally proposed: upwards-only rent review mechanisms will be prohibited in new and renewal business tenancies. The ban covers any rent review mechanism where the higher rent is not known at the time of granting the lease, including open market and index-linked reviews. The legislation also contains anti-avoidance provisions designed to catch arrangements that seek to replicate the effect of an upwards-only review. Find out more in our recent article Understanding the proposed ban on upward only rent review in commercial leases.
The only Parliamentary stage remaining is the House of Commons' consideration of Lords' amendments to parts of the Bill unrelated to rent review. This means the ban will almost certainly become law substantially in the form set out in the current version of the Bill.
The ban does not commence on Royal Assent
Although Royal Assent is expected imminently, the rent review provisions will not immediately come into force. The commencement date will be set by secondary legislation and is not expected to be before 2027.
During the Lords' report stage debate, the Government confirmed it will consult on the use of rent caps and collars before the ban comes into force. Although a potentially positive step for investors struggling with the uncertainty of upward/downward review models, it is unlikely Government would allow collars to be used to avoid the fundamental principle behind the legislation – that uncertain rent should be capable of moving up and down. (Allowing collars that provide for a marginal downward movement as a token upward/downward mechanism seem unlikely to be the Government's position on what is acceptable).
Limited retrospective impact
The most significant development since our last article is the introduction of a backstop date of 17 March 2026 for "tenancy renewal arrangements".
The ban is not generally retrospective. Existing leases containing upwards-only rent review provisions will continue to operate as they do today – and leases granted any time before the ban is brought into force will not be affected. However, the Lords' amendment introduces a targeted exception. A tenancy granted pursuant to a renewal arrangement entered into on or after 17 March 2026 will be subject to the ban – both in terms of setting the initial rent and any rent reviews in that tenancy. This includes an option to renew in a lease or a separate agreement with an existing tenant for a future tenancy of the same premises (but not a new lease granted now with a term that takes effect in the future – a "reversionary lease").
The practical effect is:
- a landlord granting a lease now can still include a valid upwards-only rent review clause for the current term, but
- if that lease also contains an option to renew, the renewal lease will be caught by the ban whenever it is granted.
The 17 March 2026 date effectively closes off a route that landlords might otherwise have used to lock in the pre-ban system for renewal leases agreed before the legislation formally comes into force.
What should landlords and tenants be doing now?
- Review live transactions and standard terms even though the ban is not yet law
Any transaction that includes a contractual renewal option should be reviewed carefully. If that has been or will be granted on or after 17 March 2026, the renewal lease will fall within the ban. Parties should decide now how rent will be determined under the renewal, rather than assuming that the current market conventions will continue to apply.
- Consider lease length and structure
Landlords may favour shorter lease terms to retain greater control over rent levels at re-letting, rather than relying on upwards-only review mechanisms for income growth over long terms. This will not help investments requiring income to be valued over the longer term where fixed or stepped rent increases (which are not affected by the ban) or to upward/downward index-linked reviews are more likely.
- Assess the impact on valuations and financing
Investment appraisals and asset management strategies built on the assumption of a rent floor at review will need revisiting, particularly for assets where renewal options form part of the projected income. Now that the final form of the ban is known, valuers and lenders will be forming their views – particularly on dealing with the two-tier market with some leases subject to the ban while others are not.
- Think about renewal strategy more broadly
As noted in our previous article, the prohibition will also apply to statutory renewals under the 1954 Act. Where an existing lease does not contain a contractual renewal option, the renewed lease — whether agreed between the parties or ordered by the court — will be subject to the ban once the legislation comes into force. Landlords with shorter-term occupiers may need to think more proactively about property management and to justify rental growth at renewal. Seeking to renew or re-gear leases early (before the ban comes into force) so that upward only review models are maintained in place for longer is also an option (if occupiers are willing).
What happens next
The Parliamentary process will continue to its conclusion followed by Royal Assent. We then expect some clarity on timing for the consultation (which could be short and coincide with the Summer) and implementation of the ban.
Although markets in other jurisdictions have adapted to similar prohibitions there will inevitably be a transition period of adjustment.
Read the original article on GowlingWLG.com
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.
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