The end of upward only rent reviews: what it means for Landlords and Tenants

What is an upward only rent review?

A rent review is the mechanism by which a landlord can look to increase rent during the term of the lease to keep up with market conditions, these typically take place at 5 year intervals but can be any agreed time period.

Whilst not mandatory, invariably, if the rent is adjusted, it will be increased. This type of a rent review is more commonly known as an upward-only rent review (UORR). Frequently, Under the terms of an UORR, the rent is adjusted to the market rent that is agreed between the Landlord and the Tenant; or an independent surveyor where the parties cannot agree.  In some instances, a rent review can be linked to the Consumer Price Index (CPI) or can be the greater of the CPI or market rent; although this is less common.

Problems with upward only rent reviews

UORRs present several problems, particularly for tenants. An UORR does not account for market conditions which means that, even in instances where rent does not increase following a rent review, the Tenant is left paying an above market rent should there have been a downturn in the market. Consequently, a Tenant could struggle, or be unable, to pay rent. This may appear to be a problem confined to Tenants but could leave Landlords with financial problems due to non-payment of rent, being stuck with a tenant that is unable to pay rent; and liable for the legal and other costs associated with prematurely ending a lease; and perhaps finding a replacement Tenant.

Other problems association with UORRs are a tenant’s ability to assign the lease to a new Tenant because the UORR may be unattractive to an incoming Tenant; or a Landlord’s capacity to secure tenants where more favourable lease terms are available.

The Government’s proposed ban on UORRs

This is set to change because the Government is planning to introduce a ban on UORRs through the English Devolution and Community Empowerment Act 2026 (EDCEA 2026). Once the Act comes into force, it will no longer be permitted to include provisions in business leases that prevent a downward adjustment of rent pursuant to rent reviews. It is expected that this change will be enacted in 2027 or 2028, although the exact date has not yet been confirmed.

Uncertainties surrounding the legislation

The reality of the situation is that we do not currently know what form the final legislation will take, whether it will only apply to certain types of rent review and whether it will be retrospective. It is currently impossible to future proof a lease with any certainty as we simply do not know what the final product is going to look like.

Potential impact on Landlords and the commercial property market

The most obvious problem is that Landlords would stand to receive less rent, however, a ban on UORRS could also reduce the value and marketability of commercial properties. UORRs provide a secure income stream. Without this, commercial property could be less attractive to investors and make it harder to secure tenants. This in turn could make it harder to obtain finance and adversely affect the commercial property market.

How the market may adjust

It is likely that the market will adjust to deal with the new normal, whatever that may be, and we may see the standard term for lease reducing from 10 years to 5 years or agreed stepped rental increases over the term rather than a rent review mechanism. Some sectors will still require longer term leases, especially where there is a larger capital expenditure on fit out at the outset, however, there is likely to be a change in what constitutes a “standard market lease”.

Next steps and staying informed

As the legislation passes through the next stages, we will keep you informed and report further and our commercial property team will, of course, be on hand to advise you as this or any other change in the market develops. In the meantime, should you wish to discuss a matter with our Commercial Property solicitors, please get in touch.