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Commercial Property specialist The issue may not have made headlines following the recent Budget, but plans are afoot that could reshape commercial leases across England and Wales—and redefine the relationship between landlords and tenants for years to come.
The end of “upward-only” rent reviews?
The English Devolution and Community Empowerment Bill includes a provision to ban “upward-only” rent reviews in new commercial leases. Historically, many leases allowed rent to rise—or remain constant—at each review, but never to fall, even when market conditions deteriorated.
Under the proposed reform, such clauses will be nullified for new business tenancies once the law comes into force (i.e. the new legislation will not apply retroactively to existing leases). Rent reviews based on open market value, inflation, or turnover will have to reflect actual market conditions, including downward adjustments when appropriate. The aim is to make commercial leases fairer, particularly for smaller tenants and high-street retailers who have long argued they were exposed to unfair rent hikes during market downturns.
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Implications for tenants and landlords
For tenants—especially independent shops, small offices, and smaller industrial users—this change could provide welcome breathing space. If market rents fall or inflation slows, rents could decrease, reducing the risk of being locked into expensive leases at the worst possible time.
However, the shift is not an unqualified win. Landlords are already responding by adjusting their strategies. Many are expected to set higher initial rents rather than rely on future upward-only reviews. Others may prefer shorter-term leases or opt for fixed annual increases, break clauses, or turnover-based rents. From a property-investment perspective, the move could also affect asset valuations. As income streams become vulnerable to potential downward adjustments, yields may rise and long-term valuations could decline.
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Broader cost pressures beyond the lease
The Budget’s impacts go beyond just rent mechanics. Businesses are facing rising costs from increased business rates. For many, the combined pressure of higher overheads and uncertain rental costs could significantly squeeze margins. Since the Budget, reports have shown that large commercial landlords warn of multi-million-pound increases in their rate bills.
Tenants are also dealing with rising expenses in other areas—labour, energy, compliance, and supply-chain inflation remain persistent. For businesses accustomed to upward-only reviews, the combined effect of higher fixed costs and more variable rents may feel like a squeeze from both ends.
Potential unintended consequences
The government’s aim is to make high-street leasing fairer and support struggling businesses. However, landlords, facing increased risks, might respond cautiously. It also remains to be seen whether self-interest will lead to watering down the proposals: many commercial landlords are huge corporate entities with substantial financial muscle and lobbying influence.
However, as things stand, the legislation could result in fewer long-term leases, more short-term deals, and reduced investment in some sectors. These changes could also lead to more frequent lease renegotiations, higher vacancy rates, and less certainty for business tenants. In some cases, overall rents for long-term tenants might increase.
Another likely outcome is the return of fixed-step rents. Since the legislation does not prohibit predetermined increases—such as a 2 % annual rise—some landlords might prefer predictable steps over variable market-linked reviews. Although this approach offers certainty, it reduces flexibility when market conditions weaken.
Where next—and what tenants should do
In light of these planned changes, businesses entering new leases should carefully review lease terms. Tenants should ascertain whether a lease is “upward-only” or subject to the new rules, and consider negotiating fixed-step increases or shorter leases with greater flexibility. Landlords, developers, and investors, in turn, will need to reassess valuation models, yield expectations, and long-term return assumptions.
For the high street, these changes could help stabilise rents and improve sustainability—but only if both parties approach leasing with realism rather than defensiveness. The true test will come when market conditions shift and tenants either benefit from—or face challenges arising from—the long-term consequences of this shake-up.
For advice on rent reviews or to discuss any other aspect of a commercial lease, call Alex Davies on 01793 615011.