Leases: rethinking upwards-only rent reviews – the 2026 Act in practice

The English Devolution and Community Empowerment Act 2026, which received Royal Assent on 29 April 2026, introduces a significant shift in the commercial leasing landscape, namely the prohibition of certain upwards-only rent review mechanisms.

Although the relevant provisions aren’t yet in force, current market expectation is that implementation will follow no earlier than 2027 (and potentially later), pending secondary legislation.

For in-house legal teams and property advisers, the key issue isn’t simply what changes, but how those changes will reshape lease strategy, negotiation and risk allocation in the coming years.

What’s changing?

At its core, the Act targets upwards-only rent reviews, historically standard provisions under which rent can increase or remain static on review but never decrease, even if market conditions shift.

Under the new regime, upwards-only elements in rent review mechanisms will be unenforceable where the reviewed rent isn’t fully ascertainable at the date of grant. This captures common review structures such as:

• Open market reviews
• Index-linked (for example, RPI/CPI) reviews
• Turnover-based rents.

In practice, these mechanisms will be converted into two-way reviews, allowing rent to move down as well as up. By contrast, fixed or ascertainable increases, such as stepped rents, remain permissible, as the future rent is known at the outset.

Scope: which leases are caught?

The prohibition applies broadly to ‘business tenancies’ within (or capable of falling within) Part II of the Landlord and Tenant Act (LTA) 1954, regardless of whether the lease is contracted out. This includes tenancies to which section 23(1) applies, namely premises occupied by the tenant for the purposes of a business as defined by section 23(2).

This means:

• The regime captures a wide range of commercial leases across sectors (office, retail, industrial and beyond)
• It also extends to leases where the tenant isn’t in occupation if the lease allows the premises to be occupied for the purposes of carrying on a business. This also captures leases where certain subletting structures are in place.

Key carve-outs

The Act does not affect:

• Existing leases (which continue their current terms)
• Certain excluded categories (for example, agricultural, mining leases or short-term leases not exceeding a term of six months).

It’s worth considering scenarios where an agreement for lease is entered into before the prohibition takes effect, but the lease itself, falling within Part II of the LTA 1954, completes at a later date. In those cases, a lease granted under a pre-ban agreement for lease may still include an unascertainable upwards-only rent review clause, even if completion takes place after the ban comes into force.

That said, the position becomes more nuanced when it comes to renewals and pre-let structures.

The hidden risk: renewal rights and timing

A notable feature of the Act is its targeted retrospective effect:

• Where renewal options or arrangements are entered into on or after 17 March 2026, the resulting lease may be caught by the ban
• By contrast, leases granted pursuant to agreements for lease completed before the legislation comes into force are generally outside the scope.

For in-house teams, this creates a critical distinction. The timing of the agreement, not just the lease completion, may determine whether the new regime applies. This has immediate implications for pipeline transactions, development agreements and pre-lets.

Anti-avoidance provisions

The Act includes robust anti-avoidance measures designed to prevent landlords from replicating the economic effect of upwards-only reviews. For example:

• Any arrangement requiring the tenant to compensate for a notional ‘shortfall’ in rent will be void
• Provisions seeking to restrict control of rent reviews (for example, landlord-only triggers) may also be overridden, with tenants given greater procedural control.

The clear policy intent is that rent must genuinely be capable of falling, not just theoretically so.

Market response: how landlords are likely to react

In practice, we’re already seeing landlords recalibrating lease structures to protect value and manage income volatility. Likely responses include:

• Shorter lease terms contracted out of the LTA 1954, reducing exposure to long-term rental uncertainty and also allowing the landlord not to be bound by the renewal regime under the 1954 Act. Any new rent will be a matter of negotiation. The landlord can insist that the tenant accepts the new rent (either at the same level or at a higher amount) or the tenant vacates the premises. This may increase vacancy rates, producing the opposite effect to that intended
• Greater use of fixed or stepped rents – preserving predictability where permitted. Collar and cap arrangements are under review ahead of the legislation coming into force, and this does seem a likely industry response, creating some certainty for both parties
• More frequent break options – allowing re-gearing to market levels more often. Landlord breaks could create more uncertainty for tenants and again result in tenants having to forego their right to renew under the LTA 1954
• Alternative review structures, including index-linked models, provided they operate on a two-way basis.

The Act also includes an anti-avoidance provision in paragraph 14 of Part 5 of Schedule 7A. This makes void any agreement requiring the tenant to make a payment in respect of any difference in rent resulting from the operation of another provision of the schedule.

There’s also early commentary suggesting a shift towards inflation-linked models, although these must still comply with the principle that rent can decrease.

Why this matters for in-house counsel

This reform represents the most significant intervention in UK commercial rent structures for decades. From a strategic perspective, in-house teams should focus on three immediate priorities:

1. Review current transactions: identify any renewal options or agreements entered into from 17 March 2026 onwards and assess whether future leases may inadvertently fall within the regime

2. Rethink negotiation strategy: expect more complex rent review provisions and anticipate landlords seeking value protection through alternative mechanisms

3. Plan for valuation and forecasting impacts: the shift to two-way rent review mechanisms introduces greater income volatility. This may affect:

• Portfolio valuation assumptions
• Funding models and covenants
• Long-term cost forecasting.

Looking ahead

While the detail will be shaped through secondary legislation and guidance, the direction is already clear. Upwards-only rent reviews, which have long been a fixture of the UK commercial property market, are being fundamentally reworked.

For commercial occupiers, the reform brings greater protection against market downturns. For landlords and investors, it introduces a degree of uncertainty and a shift in how value is managed.

For in-house legal teams, the focus now is on making sure current lease strategies remain fit for purpose in a changing regulatory landscape.