The government has announced plans to ban upward-only rent reviews, a longstanding feature of commercial leasing agreements in England and Wales. This move forms part of the newly introduced English Devolution and Community Empowerment Bill, which was tabled in Parliament late last week.

In a surprising turn, the announcement was accompanied by a statement outlining the rationale behind the proposed changes and the anticipated benefits for businesses and communities.

The government stated: a government statement that these will “pit landlords against businesses and can make rents unaffordable and cause shops to shut.

This will help keep small businesses running, boost local economies and job opportunities and help end the blight of vacant high streets and the unacceptable anti-social behaviour that comes with them.”

If passed in its current form the proposed legislation would not affect existing lease agreements but it would prohibit the inclusion of upward-only rent review clauses in any new contracts.

Landlords would then face a choice: either set a fixed rental rate for the duration of the lease or include a review provision that permits rent adjustments both upwards and downwards, depending on market conditions.

A partner at a law firm, comments: “This proposal seems to have come from nowhere. Although it will doubtless give some commercial tenants cause to celebrate, it is concerning that the proposal appears to have been developed in isolation from the work that the Law Commission is doing to amend the 1954 Act. 

“It would have been better for all proposals relating to commercial tenancies to be considered at the same time, so that an assessment could be made of the impact that each could have on the other.”

A firm specializing in marketing solutions for fund managers, professional services providers, and real estate companies states: “Plans to ban upward only rent reviews (UORR) are a blast from the past. Property landlords, including pension funds, will argue that banning UORR will undermine the value of that property and make it harder to secure lending to finance new commercial property developments.

“Banning UORR changes a commercial property from being a secure fixed income style investment to one where the cashflows are much more volatile.

“Last time this was tried the property industry managed to kick the proposals into the long grass. This will be a test of the lobbying power of the pensions industry and property landlords versus retailers.”

“The retail industry has been very clear that some of the unusual features of the UK’s property market – like UORR and overly long leases – add substantially to their costs. Before implementing any ban it would be sensible if the Government shared the research that they are using to justify this ban so that the research can be properly tested.”