For landlords and tenants, the mechanism for rent review is a significant and frequently negotiated term of a commercial lease.
Leases often contain one or a combination of open market, index-linked and turnover rent reviews. These provisions are typically drafted on an upwards only basis.
Upwards-only rent reviews (UORRs) have become a common feature of heads of terms with tenants often accepting that the annual rent will not decrease during the term.
In the absence of legislation governing rent reviews, landlords and tenants have historically been free to negotiate their terms. However, the ability for landlords to impose an UORR is likely to become a thing of the past.
The English Devolution and Community Empowerment Act 2026 (the “Act”)
Rent reviews are designed to ensure that landlords receive rent reflecting the value of the property over time. However, it has been the Government’s concern that UORRs “are artificially inflating commercial rents and ultimately pricing out small businesses from town centres”.
On 29 April 2026, the English Devolution and Community Empowerment Bill received Royal Assent. Much of the Act introduces a range of measures relating to local governance, planning, housing and transport. However, for commercial property practitioners, the prohibition on UORRs is likely to have the most immediate and long-lasting impact on commercial property law.
The Act will insert new sections into the Landlord and Tenant Act 1954. Once these provisions are in force, they will prohibit most UORRs in new or renewal leases and in any leases entered into pursuant to a “tenancy renewal arrangement” (i.e., an option for a new lease) on or after 17 March 2026.
The ban on UORRs will apply to all leases falling under the Landlord and Tenant Act 1954 whether they are granted inside or outside the protection of the 1954 Act.
Existing leases will not be affected
It will not be possible to contract out of these provisions and if UORRs are included, the upwards-only element will simply not be enforceable.
Whilst transitional provisions are expected, the intention of the Act is clearly to prevent the future use of UORRs in commercial leases.
Consequences of the Act
Allowing rents to fall during the term could result in rental valuations that more accurately reflect market conditions, however, there will inevitably be discrepancies all the while some leases have enforceable UORRs and others do not.
The possibility of rents decreasing during the term introduces an element of uncertainty into commercial lease transactions. Falling rents may also concern lenders, as the initial rent will no longer represent a guaranteed income stream.
We may see an increased use of:
- Fixed stepped rental increases throughout the term, instead of open market, turnover or index-linked rent reviews.
- Higher starting rents to mitigate the risk of falling rents.
- More index-linked rent reviews (which can go up or down) where the chance of the inflation rate falling is low.
- A combination of rent review mechanisms if the Act permits landlords to retain this option.
- Shorter lease terms with no rent review provisions.
- Landlord break options.
Whether the above approaches are used will depend on the relative bargaining strength of the parties.
Moving forward
Although these provisions are not yet in force, both landlords and tenants should seek early advice.
- Landlords and tenants should carefully review any “tenancy renewal arrangement” which has been entered into on or after 17 March 2026.
- Landlords and tenants should consider the timings of any upcoming lease renewals in light of the Act.
- Landlords should consider the impact the Act will have on property valuations and the ability to both repay loans with the risk of falling rents and to raise finance if lender requirements change.
- Tenants should seek to renegotiate UORR provisions in draft leases now where possible.
- Tenants should consider the impact of the Act on underleases and assignments. If a tenant’s existing lease has an UORR, there could be a rent gap if it is not possible to impose an UORR in an underlease. Leases with UORRs may also be less desirable to potential assignees and tenants may find it more difficult to assign their lease when new leases can be granted elsewhere without UORRs.
