Changes to upward-only rent review provisions in commercial leases

What are upward-only rent reviews?

In commercial real estate things never change. Until they do. Upward-only rent review (UORR) provisions have been a standard feature of commercial leases since the 1950s and 1960s protecting landlord income against inflation and market fluctuations.

These clauses stipulate that, at designated review dates, the rent can either increase or remain the same, but never decrease, even if the open market rental value has fallen. This gave landlords, lenders and investors certainty in respect to investments and their corresponding returns.

As part of wider efforts and its drive to support local economies, the UK government has proposed banning UORR clauses in new commercial leases under the English Devolution and Community Bill. This would constitute a major shake-up as UORR clauses would be banned in all new commercial leases and lease renewals with security of tenure in England and Wales.

It is a bold move and could spell the end of clauses that have long allowed landlords to increase rents, or some would argue keep them artificially high, even when the open market rent falls. Unsurprisingly many tenants and local business advocates see the change as long overdue, with the case for the change coming into focus during and post pandemic. Property investors and landlords are however, raising red flags.

The proposed changes

The proposed ban would make it illegal for new leases to include:

• Clauses that allow rent to go up but not down (including open market, RPI/CPI-indexed, or turnover-linked UORRs)
• “Collar” provisions that effectively block rent reductions
• Landlord-only rights to trigger reviews – tenants would have equal ability to initiate them.

Fixed rents and pre-agreed stepped increases would still be allowed, but review clauses would need to move both up and down.

The case for change

The stated aim of government is to rebalance power in favour of tenants. Supporters of the changes argue that this offers a long overdue lifeline to the high street by removing a key cause of commercial vacancies, unaffordable rents. The move is expected to help revive struggling high streets and town centres, reducing empty shop fronts. The Federation of Small Businesses is a vocal advocate of the reforms for precisely this reason.

Supporters argue that the changes will result in fairer rents for tenants who would no longer be trapped paying inflated rents when the market drops. This is especially beneficial for small and medium-sized businesses who need flexibility to survive economic downturns where market responsiveness is key. Leases that reflect real-time market conditions will foster a more dynamic and transparent commercial property market.

The changes would also empower tenants, giving them equal footing in lease negotiations and rent reviews, potentially reducing disputes and improving long-term landlord-tenant relationships.

The landlord and investors perspective

The commercial property sector is still processing the proposed changes.

There is a view (and I include myself in this) that the proposed changes are very high street centric. Problems on the high street are well documented and it’s clear bold action needs to be taken to address these issues. There is a reasonable argument to be made to rebalance the landlord and tenant relationship in the context of the high street but elsewhere the Bill could have a chilling effect. The proposed ban is not sector specific and would apply across the board, including offices and industrial units, which may have unintended consequences for other sectors.

Landlords rely on UORRs for stable and predictable income. Commercial real estate is often valued based on guaranteed income streams. Without them, rental income becomes more volatile, especially in declining markets. If rents fall, property values may decline, affecting financing, lending, and investment confidence.

What happens next?

The bill is still making its way through Parliament, with implementation likely around 2027–2028. In the meantime, stakeholders are closely watching for clarity on (and no doubt will be lobbying around) turnover and CPI leases and whether these will be permitted, transitional rules and valuation approach post implementation.

A landmark shift

The proposed ban on upward-only rent reviews marks a landmark shift in real estate law. For tenants, one could argue that it’s a win for fairness and flexibility. For landlords and investors, it’s a challenge to traditional income models and long-term valuations.

What’s clear is that landlord and tenant dynamics are heading for transformation. Whether this results in a healthier market—or just a new set of problems—will depend as ever on the detail.