Big changes ahead for Commercial Leases
The UK Government has recently introduced the English Devolution and Community Empowerment Bill, which could bring major changes to commercial property leases. One key proposal is to ban upwards-only rent reviews — a common feature in many commercial leases that only allow rent to increase, never decrease.
If this becomes law, it could have a big impact on how landlords and tenants agree rent terms, and it may affect property investments and financing too.
What is an upwards-only rent review?
An upwards-only rent review is a clause in a lease that allows the rent to go up at review time, but never down — even if market rents have fallen. The new Bill aims to stop this practice and allow rent to go down if market conditions justify it.
Which leases will be affected?
The proposed rules will only apply to certain leases. Here’s a breakdown:
- Business leases: The rules will apply to leases covered by the Landlord and Tenant Act 1954, even if the lease has opted out of security of tenure. Residential leases are not affected.
- New leases only: The changes will apply to leases granted after the law comes into force. Existing leases won’t be affected.
- Uncertain rent reviews: The lease must include a rent review where the new rent isn’t fixed or known in advance. Simple stepped increases (where rent goes up by a set amount at set times) won’t be caught.
- Variable rent methods: The rent review must be based on things like inflation, market rent, or tenant turnover — and the final rent must be able to differ from that reference amount.
What happens if the clause is caught?
If a rent review clause leads to a rent that’s higher than the reference amount (like market rent or inflation), the clause will be ignored. Instead, the rent will be set at the reference amount — which means rent could go down.
Other Key Points
- Tenants’ rights: Tenants will be allowed to take steps to start or manage rent reviews.
- Put options: The same rules will apply to leases granted under put options (where a tenant can be forced to take a lease).
- Anti-avoidance: The Bill includes rules to stop landlords from getting around the new law.
- Exceptions: The Secretary of State will be able to make exceptions, but no details have been given yet.
What does this mean for the property market?
If passed, this law could change how leases are negotiated and valued. Landlords may try to sign leases before the law takes effect. Investors and lenders may also need to rethink how they assess property deals.
Final thoughts on the Government’s intended changes
This proposal is still in the early stages, and it may change or be dropped. But it’s clear the Government is looking to make commercial leasing fairer and more flexible. Anyone involved in property — landlords, tenants, investors, and advisers — should keep a close eye on how this develops
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