A turning point for rent reviews? The English Devolution and Community Empowerment Bill and its implications for commercial property
The recently introduced English Devolution and Community Empowerment Bill is attracting attention across various sectors, particularly for its proposals aimed at rebalancing economic power and revitalising local communities. Among its commercial property provisions, one proposal in particular stands out being the ban on upward-only rent reviews in commercial leases.
This marks a potentially significant shift in how rent reviews are structured in the UK market and could have far-reaching implications for both landlords and tenants.
Understanding the proposal
Upward-only rent reviews have long been a standard feature in commercial leases. Typically linked to market rent or indexes, these clauses ensure that the rent can increase at review dates but can never decrease, even where the open market rent has fallen.
This approach has historically provided landlords with income stability and has supported asset valuations, which in turn underpin lending and investment decisions. However, from a tenant’s perspective, particularly in times of economic uncertainty or downturn, upward-only clauses can lead to a misalignment between rent levels and actual trading conditions.
The government’s proposal to prohibit upward-only rent reviews is presented as part of a broader strategy to empower communities and stimulate economic activity on high streets and in town centres. The aim is to create more balanced lease structures, reduce barriers to entry for local and independent businesses and foster long-term occupancy and investment in local areas.
What could change?
If enacted, the Bill would prevent new commercial leases from containing upward-only rent review clauses. Instead, rent review mechanisms would need to allow for the possibility of both increases and decreases in rent, reflecting actual market conditions at the time of review.
At this stage, it is understood that the ban would apply to new leases rather than existing agreements, although secondary legislation and transitional provisions may clarify this further.
This shift may prompt landlords and investors to explore alternative approaches to rental income. These could include:
- Greater use of turnover rents, where rent is linked to business performance;
- More frequent rent review intervals to manage volatility; and
- Adjustments to initial rent levels to reflect increased risk.
For tenants, particularly smaller or independent occupiers, the proposal may offer enhanced flexibility and more sustainable rental obligations and therefore potentially making commercial premises more viable in the long term.
Wider market implications
From an investment and lending perspective, the removal of upward-only clauses could create uncertainty. Property valuations, particularly in the retail and leisure sectors, often rely on predictable rental growth underpinned by these mechanisms. Any change to this model may influence lending criteria, yield calculations and risk assessments.
It also remains to be seen whether a statutory ban would create pressure to revisit existing leases in practice, even if not legally required. Over time, tenants may begin to favour landlords willing to adopt more flexible terms which could potentially shift market expectations across the board.
Next steps
The Bill is still at an early stage and the proposed ban will be subject to Parliamentary scrutiny and possible amendment. However, commercial landlords and tenants alike would be well advised to begin reviewing their lease strategies in anticipation of change.
How Moore can help
We at Moore Barlow will continue to monitor developments closely and are available to advise clients on the practical implications of the Bill and on proactive steps to future-proof leasing arrangements.
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