The end of upwards‑only rent reviews?

The English Devolution and Community Empowerment Bill, now progressing through the House of Lords, proposes a ban on upwards-only rent review clauses in new commercial leases in England and Wales.

Under current lease structures, once rent is set or reviewed upwards, it can’t fall – even if the market moves against the tenant. This reform will allow rents to move up or down in line with market conditions. The ban will apply to all new commercial leases, including statutory renewals, once the legislation comes into force.

The changes represent one of the most significant shifts in commercial leasing practice in a generation.

I’m a landlord – how does it affect me?

For landlords and investors, removing guaranteed minimum rental income introduces new risks. Rental income streams will become less predictable, which may affect property valuations, investment returns and lending decisions. Lenders may also seek additional security or impose stricter covenants.

In response, landlords may look to increase headline rents at the outset and reduce incentive packages such as rent-free periods.

What about tenants?

For tenants, the reform offers greater protection against paying above-market rents during economic downturns. If market rents fall, tenants will be entitled to a downward adjustment at the next review date.

However, any benefits may be offset if landlords respond with higher initial rents or shorter lease terms.

What’s the likely impact of the ban?

The ban is expected to accelerate a shift towards alternative rent review structures. Fixed or stepped rent increases, which fall outside the scope of the ban, may become more attractive for landlords seeking income certainty. Index-linked reviews are also likely to grow in popularity, as inflation indices rarely fall over a typical review cycle.

Some parties may opt for shorter lease terms of three to five years, resetting rent at each renewal rather than using two-way reviews.

The Bill includes robust anti-avoidance provisions. Any mechanism designed to prevent rent from falling – including caps and collars in their current form – will be unenforceable.

What should landlords do now?

Although the ban isn’t yet in force, it’s sensible to begin portfolio planning now. You may want to:

• Audit your lease portfolio for upcoming expiry or renewal dates
• Reassess income projections and valuations to stress-test potential downward adjustments
• Review financing arrangements and loan covenants
• Consider alternative lease structures for new lettings.

What should tenants do now?

You may want to:

• Review your lease portfolio for upcoming expiry or renewal dates and consider whether to negotiate two-way rent review clauses in advance of the legislation
• Evaluate the impact of alternative rent structures such as fixed, stepped or index-linked reviews on your ability to meet the rent over the lease term, particularly against a potentially higher headline rent.

We’ll continue to monitor the Bill’s progress and publish further updates as the position becomes clearer.