Interesting news emerged at the start of July 2025, when the Government introduced the English Devolution and Community Empowerment Bill to Parliament.
What does the new Bill mean for the property sector?
Very little of this directly concerns the commercial property world. However, Part 5 of the Bill proposes changes to the Landlord & Tenant Act 1954, which would prohibit upwards only rent reviews in new leases and renewal leases in England & Wales. Although the subject of upwards only rent reviews has been discussed for years, the proposed introduction of these measures was quite a shock to the sector.
What is an upwards only rent review provision?
Most commercial leases over 5 years in length have upwards only rent review provisions which operate every 5 years. This really started back in the 1950s and 1960s to protect investor income against inflation.
Upwards only rent review clauses in a lease ensure that the new rent assessed at the rent review can only increase or stay the same, even if the rental market has declined. Very few rent review clauses are currently drafted to enable rents to go up and down to reflect the then prevailing market conditions. The Government sees this as a failure of self-regulation by the property industry and seeks to legislate to correct this.
What is the Government reviewing about the provisions?
The problem seen by the Government is that tenants do not benefit from any falls in the rental market, but are tied into paying rent at an inflated level.
The Government’s view is that this leads to market inefficiencies, including higher rents during economic downturns, lower profits for tenants, higher prices for consumers, the general artificial inflation of commercial rents and the pricing out of small businesses from town centres.
The Government states in its guidance on the introduction of the Bill that its intention is to “make commercial leasing fairer for tenants, ensure high street rents are set more efficiently, and stimulate economic growth”.
Good news for tenants (possibly) – but what about landlords and their banks?
Are there any negatives?
Anything that adversely affects landlords will eventually also adversely affect tenants. It may be that leases will become generally shorter and without rent reviews, so circumventing these provisions. A tenant requiring a longer lease to secure its location may find that these proposed provisions work against its longer-term interests.
Landlords are generally likely to be very concerned, as this may affect their income streams, on which they depend to stay in business themselves.
Commercial properties which are let are often valued on the basis of rental income streams, and anything which could lead to these decreasing could mean a reduction in the value of a landlord’s investment portfolio.
Lenders to landlords of commercial investment properties are likely to restrict their lending on commercial investment properties for this reason, and also as a result of concerns that a reduction in rental income stream will prevent a landlord from making its mortgage payments.
The property industry points out that it is not in landlords’ interests to make rents unaffordable, and that the prospect of upwards and downwards rent review clauses may lead to the shrinking of investment into the property market, as landlords move out of commercial property and seek to make a return elsewhere.
Will there be any exclusions?
Although some leases will be excluded from this legislation, such as certain agricultural tenancies, there is also a concern that legislative changes which seem to be primarily aimed at the high street retail sector would apply to all commercial leases – and that the application of these provisions to manufacturing and logistics leases may have the effect of restricting choice and availability of premises for tenants, rather than the other way round.
Concerns are also being expressed that market regulation of this type simply does not work and has unintended wider consequences, in fact creating market uncertainty, slowing economic growth and damaging investor confidence and the property market generally, rather than stimulating it.
Other commentators wonder if the Government should direct its attention elsewhere in relation to its wish to regenerate town centres - on the basis that if the concern is retail leases becoming over-rented, in fact, the retail leasing market has already evolved way beyond 25-year leases with upwards only rent reviews every 5 years. These days, many high street leases do not exceed 5 years and do not contain rent review clauses in any event.
What’s next?
We now await to see what happens as the draft bill progresses through Parliament – scrutiny is now needed by MPs and specialists, and both landlords and tenants will be hoping that sufficient time is allowed for a full review and industry debate and consultation, before a substantive change of this nature is enacted.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
