For decades, upwards‑only rent review clauses have given commercial landlords a stable and predictable income stream. However, the UK Government’s proposal to ban these clauses in new commercial leases signals a potentially significant shift in the commercial property landscape. If introduced, the change could directly affect rental income assumptions, landlord investment strategies, and commercial lending.
The Government has not yet confirmed when the ban might take effect, but if you rent premises for business purposes, you may soon have greater scope to negotiate future rent levels.
Most commercial leases running for more than five years contain rent review mechanisms, typically by reference to open market rent, an index such as RPI or CPI, or turnover. These clauses are traditionally drafted to ensure rent either remains the same or increases, protecting the interests of landlords and lenders.
The proposed reform would remove this upwards‑only protection, potentially allowing rents to decrease where market conditions justify it.
Why is the Government proposing this change?
According to the Government, stakeholders have expressed concern that upwards‑only rent reviews are artificially inflating commercial rents and making town‑centre premises unaffordable for small businesses. The proposed ban aims to strengthen high streets by enabling small and independent businesses to take leases they may previously have avoided.
However, many small high‑street businesses already occupy on shorter‑term leases that do not include rent review provisions at all. Whether the reform will have the intended economic impact, therefore, remains uncertain.
Impact on Existing and Future Leases
Crucially, the ban would not apply retrospectively. Existing leases will remain unchanged, with the reform only affecting leases granted after the legislation comes into force.
Landlords should consider:
- How the change could impact future rental projections
- Whether shorter lease terms might become preferable
- Whether to adopt fixed or stepped rent structures instead
- How investment decisions might need to adapt
Both landlords and tenants currently negotiating new leases or renewals should review their positions carefully. If timeframes allow, tenants may benefit from delaying renewal discussions until the legislative direction becomes clearer.
What happens next?
The proposals will go through debate and industry consultation, and the final form of the legislation may change. Landlords, tenants and investors should monitor progress and seek advice on lease structuring and long‑term planning in anticipation of any reforms.
If you are considering your lease options, our Commercial Property team can assist you. Please call our team on 0191 384 2441 or email Gillian Moir at gillian.moir@swinburnemaddison.co.uk.
