Are we about to see the end of upwards-only commercial rent reviews in England and Wales?

Last week, the government introduced the English Devolution and Community Empowerment Bill to Parliament (10 July). Although the Bill’s principal focus is to devolve powers from Westminster to local strategic, combined and mayoral authorities, it has also sparked discussion in the commercial property world because of its inclusion of a ban on upwards-only rent reviews (UORR) in new commercial leases in England and Wales.

Principal focus is to shift powers locally

The Bill, which is in six parts, has 31 schedules and applies to England and Wales, is designed to empower regions to take greater control of their economic and social assets. Its effect will be a move to a more decentralised model of governance, encouraging local ownership of community sites such as pubs, shops, and other social hubs, and promoting “effective neighbourhood governance”.

But, despite this wide scope, the immediate spotlight in the commercial leasing world is on the surprise appearance in the Bill of a ban on commercial UORR clauses – a provision unconnected to the rest of the Bill.

What are UORR clauses?

UORR clauses prevent a rent from dropping below the amount set at the start of the tenancy or, where higher, below the rent payable immediately before the review date. In an economic downturn, where market rents have fallen, such clauses can see tenants paying higher-than-market rents which can put them under financial strain and, in worse case scenarios, see them go out of business. There has therefore been much debate over the years on whether UORR terms in commercial leases should be banned. But the discussion has never progressed as far as getting to Parliament in a government led bill… until now!

Proposed ban and its scope

The proposed ban is set out in Part 5 and Schedule 31 of the Bill and applies where:

1. the amount of rent payable during the lease term is (or might be) subject to change; and

2. the new rent is:

a. unknown at the start of the tenancy; and

b. calculated by reference to a variable factor (referred to in the Bill as the “reference amount”), for example a hypothetical market rent, a turnover rent or  inflation indices such as CPI or RPI.

If/when the ban comes into force, commercial landlords will only be able to require their tenants to pay:

1. Fixed rents that remain the same throughout the lease term (although stepped increases in rent will still be permitted since they are agreed from the outset, so we may well see an increase in their use); or

2. Rents calculated pursuant to a variable mechanism that allows the rent to go down as well as up.

Any attempt to include a UORR term in a new lease will be illegal and unenforceable.

But the UORR ban will not be retrospective. It will not extend to any leases that are already in place by the time it comes into force (if it does). Nor will it apply to new leases granted pursuant to contracts entered into before the ban becomes law. But the ban will apply to renewal leases, whether the renewal is voluntary or pursuant to the Landlord and Tenant Act 1954. So we can see that a ‘two-tier system’ will exist for a time following implementation.

The proposed ban is clearly then going to impact a wide range of retail and leisure premises, offices, and industrial properties. Agricultural leases though will not be caught by it.

A departure from traditional leases

Long leases of 10, 15 or 20 years used to be the standard for commercial leases in England and Waled, and UORR clauses offered consistent returns to landlords. However, in today’s market, notably in the retail sector, five-year lease terms or shorter – or sometimes longer terms but with tenant breaks - are more common. Arguably this makes the ban less momentous than it might have been in previous years. But, even if that is true, if the Bill passes unchanged, it will fundamentally alter the landscape and negotiating positions for both commercial landlords and tenants. And the ban itself might be a factor in shortening lease terms still further.

Other changes affecting rent review

Alongside the UORR ban, the Bill contains several other tenant-friendly measures. Tenants will be able to trigger a rent review if the lease’s procedural requirements only allow the landlord to do so. Tenants will also have power to take action to enable rent review to operate effectively.

The ban also extends to “put options,” which allow landlords to require tenants to enter new tenancies. Under the new rules, landlords will be unable to use put options as a means to impose rents higher than the “reference amount” (as above).

And importantly, there are robust anti-avoidance provisions in the Bill that will stop landlords from sidestepping the ban by introducing other terms that function like UORR, even if not expressly worded as such. 

What is the government’s reason for the ban and what is industry’s reaction?

The government has said that its aim here is to prevent businesses facing unaffordable rents, which can lead to vacant high streets and unacceptable anti-social behaviour. And, despite not having appeared in the government’s original proposals for the Bill announced last July, nor in Labour’s election manifesto, this is an aim that the government sees as requiring legislative intervention.

In the absence of any pre-consultation, we await the various and no doubt wide-ranging views that industry stakeholders will have. The Federation of Small Businesses has already been reported to welcome the ban, with its Executive Director saying that “a typical small firm in premises has faced rising rents and rates among all the other costs like national insurance contributions”. But, in contrast, the Chief Executive of the British Property Federation is reported to have said that the move amounts to "interference in long-established commercial leasing arrangements without any prior consultation or warning".

And whether a formal consultation will in fact take place before implementation remains to be seen. But, given the ban’s fundamental impact on commercial leases if passed, there are many interested parties, including commercial investors and financiers, who are going to be keen to make their views known. So we can expect to see plenty of debate and coverage relating to this proposed ban as it makes its way through Parliament.

Will the proposed ban become law?

The ban currently appears in a draft Bill that, at the time of this article, has only so far had a single reading in Parliament. So there is still a long parliamentary road ahead.

The Bill may be altered, delayed or even, as has happened with parts of the Leasehold and Freehold Reform Act 2024, judicially challenged along the way. All made more likely by the absence of any pre-consultation. So industry reaction is only just kicking off. Add even if/when the Bill becomes law, certain of its provisions (including the UORR ban) will only take effect after further secondary legislation has been passed.

But now is the time for landlords, tenants and other commercial property stakeholders to be engaging with each other and with industry representatives to make their views known.

TLT thoughts

Maria Connolly, Head of Future Energy and Real Estate at TLT says:

“The proposed ban on upwards-only rent reviews in new commercial leases could help renewable energy operators maintain stable overheads, reduce inflation worries and encourage further green investment.  Unlike most commercial leases, energy leases tend to be subject to indexation review mechanisms (typically CPI) rather than open market reviews. Energy developers will need to maintain their position on the need for long term leases particularly for investor and bankability purposes so we expect will be less affected by the potential shift in other sectors to shorter term arrangements should the ban get traction.”

Neal Bhattacharyya, Partner in TLT’s commercial real estate team says:

“Whilst this is not the first time a ban on upward-only rent reviews has been considered at government level, it is fair to say that its sudden introduction in the proposed Bill has taken many in the commercial landlord community by surprise. Some landlords will, no doubt, have expected prior consultation with industry bodies and may be concerned that the legislation will negatively affect asset values and have other unintended consequences for the property investment market. Landlords may see tenants asking for upward/downward reviews in anticipation of the ban taking legal effect. Where that is not agreed, landlords may have tenants requesting shorter leases with no reviews, or leases with fixed stepped rents. We therefore expect to see rent and rent reviews become a matter for increased negotiation between parties, regardless of whether the ban is ultimately passed.”

Peter Blakemore, Legal Director in TLT’s retail real estate team says:

“Tenants will be pleased to see the government proposing more tenant-friendly rent review terms in the Bill, giving them greater control over rents – a move that will be particularly welcome for occupiers in today’s challenging economic climate, particularly in the retail and hospitality sectors. But banning UORR terms might have unintended and adverse consequences for tenants. For example, landlords might respond by setting higher initial rents to counter the effect of the ban. Or they might seek fixed stepped rents at higher levels, rather than leave rent increases to the vagaries of the market or inflation indices. However, there is obviously some way to go and, needless to say, the Bill will be closely followed through Parliament by both landlords and tenants and their representatives!”

If you would like further guidance or assistance in planning for these legislative and policy changes, please contact Richard Cross who can help put you in touch with our specialist team to ensure full preparedness for what (might!) lie ahead.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2025. Specific advice should be sought for specific cases. For more information see our terms & conditions.