By Emily Seager, Lease Advisory Partner at Knight Frank, Newcastle.
The government’s proposal to ban upward-only rent reviews in commercial leases aims to make rents more responsive to market conditions and rebalance the landlord-tenant dynamic.
However, its implications for landlords, tenants, and investors are far-reaching and complex.
How things stand
Upward-only rent reviews, linked to open market rents, have long defined commercial leases across England and Wales. They guarantee that rent will never fall during the lease term, even if market conditions weaken.
For landlords, especially institutional investors such as pension funds and REITs, this provides predictable income, supports valuations, and reassures lenders.
For tenants, however, it can mean paying above-market rents during downturns, reducing flexibility and increasing financial pressure.
The proposal and timings
The English Devolution and Community Empowerment Bill is at committee stage. There’s still time for amendments and we’re months away from achieving Royal Assent but upward-only rent reviews look set to disappear in England and Wales.
The ban would apply to most commercial leases under the Landlord and Tenant Act 1954, including retail, offices, industrial, hospitality and not-for-profit sectors. It will only impact new leases granted after the legislation comes into force and will not affect existing leases.
What’s being banned
The legislation targets any clause preventing rent from falling – whether tied to open market value, turnover, or indexation.
Anti-avoidance provisions will override attempts to sidestep the rules, such as side agreements or rent floors. Compliant clauses must allow rent to move both up and down in line with market evidence or agreed formulas. Stepped uplifts and caps will still be permitted, with further clarification expected through secondary legislation.
Implications for tenants
For occupiers, the change could bring several benefits:
Flexibility: Rents may now fall during downturns, offering relief when trading conditions weaken.
Transparency: Leases could become simpler, with fewer one-sided clauses.
Negotiating power: Tenants could be in a stronger position as a key point of leverage for landlords is removed.
However, landlords will likely adjust by seeking higher starting rents, fewer incentives, or shorter lease terms to offset potential income volatility.
Implications for landlords and investors
Landlords face the greatest challenge: the loss of income certainty. Rental streams could fluctuate, affecting valuations and loan security. Pension funds and long-term investors may view such assets as less attractive without guaranteed rent floors.
Likely market responses include:
A shift to stepped or index-linked rents (without collar) allowing rents to track inflation.
Shorter leases, though this risks higher turnover and void costs.
Higher starting rents and reduced upfront incentives.
More conservative lending and valuations as banks factor in rental volatility.
A two-tier market emerging between old “up-only” and new “up/down” leases, complicating valuations.
Practical considerations
The impact will vary by sector. The retail market – already accustomed to turnover rents and shorter leases – may see limited disruption with a reform to business rates far more pressing.
Office and industrial/logistics markets are likely to see a widening gap between prime and secondary stock, particularly as greater uncertainty around income predictability will increase the threshold at which development becomes viable – likely leading to reduced supply in the medium term (which may drive higher rental growth for new, high quality stock).
A period of uncertainty is likely meaning lease negotiations may stall while parties await clarity, while others may rush to complete deals before the ban takes effect – creating short-term market distortions.
Strategic actions
For landlords and investors:
Review portfolios for exposure to upwardonly leases and be proactive with tenants.
Engage early with lenders to discuss potential financing impacts.
Explore compliant rent models such as stepped, turnover-based, or hybrid structures.
For tenants:
Review lease expiry and renewal timelines to decide whether to delay negotiations.
Factor possible rent review changes into budgeting.
Consider index-linked reviews or shorter cycles to align with business planning.
Conclusion
The commercial property market will adapt to the ban on upward-only rent reviews, as seen in other countries, but the transition will bring short-term disruption.
Businesses should use the coming months to plan strategically – review lease portfolios, seek expert advice, and prepare for negotiations under a new framework that could fundamentally reshape the leasing landscape in England and Wales.
Contact: 0191 594 5046
emily.seager@knightfrank.com