Upward-only rent review ban may split commercial lease market

Upward-only rent review ban may split commercial lease market

The government’s prohibition on upwards-only rent reviews in new commercial leases risks creating a two-tier market, with older and newer leases differing significantly in value and terms, according to legal experts.

The English Devolution and Community Empowerment Act 2026, which bans upwards-only rent reviews (UORRs) in new commercial leases, received Royal Assent in April but lacks a confirmed commencement date and detailed operational guidance. This uncertainty affects landlords, tenants and agents negotiating leases now.

Nick Leavey, commercial property partner at law firm Morr & Co, warns that existing leases containing traditional UORR clauses will remain unchanged, while new leases will need alternative rent review mechanisms such as fixed annual increases or index-linked reviews. This divergence could persist for years, creating distinct lease categories with different risk profiles and market values.

Implications of the ban on lease structures and market value

Leavey highlights that the timing of a lease’s signing will increasingly determine its value. Older leases with upwards-only rent reviews may benefit landlords if rents rise sharply, but could be less attractive if the market weakens. Conversely, leases with fixed or index-linked increases might offer tenants more predictable costs but could become costly if inflation surges.

This dual system could lead to “winners and losers” on both sides, with landlords and tenants affected differently depending on their lease terms and market conditions. Moreover, the type of lease a business occupies might influence its overall valuation, adding complexity for commercial property investors and occupiers.

Drawing parallels with Ireland’s experience after similar reforms in 2010, Leavey suggests the market will adapt by developing new lease structures that eventually become standard. However, the relative value of these structures will depend heavily on future economic and rental market trends.

Context of the legislation and ongoing uncertainties

The English Devolution and Community Empowerment Act 2026 aims to balance landlord and tenant interests by preventing rent increases that only go upwards, which critics argue can be unfair to tenants during market downturns. However, the lack of clarity on implementation details—such as how caps and collars on rent increases will be handled—adds uncertainty for those negotiating leases.

Existing leases with upwards-only clauses remain valid, creating a coexistence of lease types. This situation complicates market dynamics, as landlords and tenants must assess the relative benefits and risks of each lease form in light of economic conditions and their business needs.

Practical effects for landlords and letting agents

Landlords with commercial properties should review their lease portfolios to understand which agreements contain upwards-only rent reviews and which will be subject to new rules. Letting agents advising on commercial leases need to prepare clients for the possibility of varied rent review mechanisms and the potential impact on rental income stability.

Negotiations on new leases will require careful consideration of alternative rent review clauses, including fixed increases or indexation, and how these might perform under different market scenarios. Both landlords and tenants should seek clarity on forthcoming government guidance and monitor any updates on commencement dates and detailed regulations.

Uncertainties and what to watch for

The government has yet to confirm when the ban on upwards-only rent reviews will come into force or publish comprehensive guidance on its application. Key questions remain about how rent review caps and collars will be treated and whether transitional arrangements will be introduced.

Market participants should watch for official announcements and be prepared for a period in which two distinct lease types operate simultaneously. This could affect lease valuations, tenant negotiations, and investment decisions in the commercial rental sector.

What landlords should consider now

• Assess existing commercial leases to identify upwards-only rent review clauses and understand their implications under the new legislation.
• Engage with legal advisors to evaluate alternative rent review mechanisms suitable for new leases, considering fixed or index-linked increases.
• Monitor government updates closely for commencement dates and detailed guidance to ensure compliance and informed negotiation strategies.
• Communicate with tenants about potential changes to rent review terms and prepare for discussions on lease renewals or new agreements.
• Consider the impact of lease structure differences on property valuations and business tenant relationships.

Supporting landlords through changing rent review rules

TLA membership offers landlords and letting agents access to up-to-date compliance resources and practical guidance on navigating the evolving commercial lease landscape. Through TLA’s developing ORBIT platform, currently in BETA testing, members can organise property portfolios, manage lease documentation, and record key compliance actions related to rent reviews and tenancy agreements.

ORBIT’s tools aim to help landlords track lease terms, monitor regulatory developments, and prepare for new obligations arising from the ban on upwards-only rent reviews. Members can explore TLA’s compliance resources and review how to adjust rent review clauses effectively to protect their interests in a changing market.

Explore TLA membership and learn more about ORBIT BETA access to stay informed and organised as commercial lease regulations evolve.

The commercial rental market is entering a transitional phase that requires landlords and agents to be proactive and well-informed. The forthcoming government guidance will be crucial in shaping how rent reviews are conducted and how lease values adjust in response to these reforms.

Sources: Landlord Today