The only way isn’t up: the Government targets upwards-only rent reviews

The Government has buried a sting in the tail of a Bill dealing with local government and devolution. With no forewarning or consultation with the real estate industry, it has proposed to abolish upwards-only rent reviews for business tenancies.

Who’s going to be caught?

The proposed ban on upwards-only rent reviews will apply to leases where a tenant occupies the premises for business purposes (whether or not the tenancy is contracted out of the 1954 Act). 

The ban won’t be retrospective – so it won't affect leases that pre-exist the Bill going live (if and when it does) or those leases which are entered into pursuant to an agreement that pre-dates the ban. 

But it will catch any tenancies renewed after the Bill comes into force – whether the renewal is agreed or statutory.

What’s being banned?

The ban will apply to any rent review where the new rent is unknown and undetermined on the date the lease is entered into. This means that the ban will not affect “stepped” rents where the rent increases are pre-agreed in the lease.

The ban will affect rent reviews calculated by reference to:

• open market rent;
• indexing/inflation; or
• turnover.

The rent must be able to go up or down; the revised rent will be the figure it would have been without an upwards-only provision. Rent collars or floors will not be permitted. 

Are there anti-avoidance provisions?

Any agreement to circumvent the provisions will be void. In addition:

• Tenants will be able to trigger the rent review process if a landlord decides to avoid starting a rent review in case of a downwards result.
• Landlord put options – a workaround where the landlord requires the tenant to take a renewal lease at the higher of market rent and passing rent instead of having a rent review – will be banned.

Déjà vu? Has a ban been considered before?

Globally, we are in the minority for treating upwards-only rent reviews as market standard – they are fairly unusual in other jurisdictions. The Blair government considered introducing a ban, but backed off and did not pursue it. 

Ireland went all in and abolished upwards-only rent reviews in 2010. This resulted in some short-term market instability, while investors, lenders and valuers had to adjust their modelling and valuation bases, but the market did adapt over the coming years. According to Bisnow research, in the short term lenders lowered their LTVs, there was a temporary premium on older assets that had older leases, and there was an increase (although more limited than anticipated) in inflation linked and turnover leases in the retail sector.

What will happen if the Government implements the ban?

The real estate and financial markets flourish with stability and don’t respond well to surprises. The Royal Institution of Chartered Surveyors (RICS) warns that it is “essential that this Bill does not create market uncertainty at a time when many businesses need confidence”. The commercial property investment sector has been struggling in recent years already with the high cost of debt and with volatility in values and demand. 

Upwards-only rent reviews underpin why business leases are attractive to investors and lenders, with a stable guaranteed cash flow over the lifetime of a lease. It is of course relatively rare to have a falling market and a downwards trajectory in open market rents and inflation; nevertheless, they can happen. Abolishing the long established, upwards-only rent review threatens to undermine the business lease as a secure investment and lending model and to destabilise how commercial property is valued. 

It’s a headline grabbing proposal from the Government, but does it even solve a problem? The accompanying press announcements suggest the ban will help the high street and retail tenants. In reality, however, the retail sector takes shorter leases which don’t contain rent reviews – the retail industry is actually one of the sectors least likely to benefit from the ban. Retail tenants are suffering from larger issues with high business rates and the shift to online shopping. Meanwhile, a ban on upwards-only rent reviews is likely to have a significant impact on the wider commercial property sector and investor confidence. Presumably to demonstrate action and to garner vote-winning headlines for the party faithful, the Government is focusing on detailed market issues rather than consulting first with the real estate industry and seeing the bigger picture.

The draft legislation will be subject to Parliamentary scrutiny and much needed consultation with real estate stakeholders. There are already issues evident with the proposed provisions. For example, the ban only applies to tenancies where the business tenant is in occupation; therefore, if the tenant has sub-let its premises, the ban will apply to the sub-lease but not to its own lease, meaning the tenant may be forced to pay its landlord more on rent review than its subtenant is forced to pay the tenant. Regardless of occupation, the ban will also have an immediate impact on the sub-letting market as the ban will not apply to leases which pre-date the ban, but will apply to sub-leases that are entered into after the ban. 

How will the market adjust?

If the ban is implemented, we may start to see higher initial rents (possibly with longer rent free periods to balance the higher headline rent) to enable landlords to maintain a suitable income stream throughout the term of the lease or stepped rents or index linked reviews (betting on the fact that, unlike market values, inflation won’t go down too far any time soon). Landlords may favour shorter leases without rent reviews or landlord break rights on rent review so that the landlord is free to renegotiate the rent, but much will depend on wider market conditions and the relative bargaining power of owners and occupiers. The market has already shifted considerably in recent years, with shorter lease terms and more flexibility with breaks, so a glass half-full analysis may be that this is simply another step in the evolution away from the gold standard FRI lease.

This may turn out to be a problem that doesn’t make it onto the statute books; after all, the Government has plenty of other issues burning holes in its desk. In case this does make it into law, however, landlords should be considering how the ban would impact their business modelling and valuation and strategy. They should also be engaging with industry bodies and the Government’s anticipated consultation to share their views. The hope will be that the more pressure that can be exerted by the industry, the more the Government will listen and the better the outcome will be for UK plc.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2025