Commercial Leases Shake-Up: Government Move to Ban Upwards-Only Rent Reviews – How 2025–2026 Reforms Affect Rent Reviews and Renewals
The commercial property sector in England and Wales is preparing for one of the most significant legal changes in decades.
The Government has confirmed reforms for 2025–2026 that will ban upwards-only rent reviews, a mechanism long criticised for locking tenants into ever-rising rents even when market values fall.
These reforms will alter how landlords and tenants negotiate reviews and renewals, reshape investment models, and set new compliance requirements.
In this article, we examine the implications of the ban, explore what remains permissible, and explain how landlords must adapt to these changes.
What Are Upwards-Only Rent Reviews?
Upwards-only rent reviews are contractual clauses found in many commercial leases. They stipulate that, at review, rent may increase but never decrease.
Landlords have historically favoured this approach because it provides certainty of income growth and reduces risk. However, for tenants, it has meant paying above-market rents in downturns, limiting flexibility and adding to operational pressures.
The Government’s planned reforms target these clauses directly, viewing them as anti-competitive and harmful to high-street resilience. From 2025 onwards, new leases will need to incorporate rent review mechanisms that reflect both upward and downward movement.
Scope of the Ban: What Will Be Prohibited
The prohibition covers several common structures that have historically favoured landlords:
- Open Market Rent Reviews: Where the clause prevents downward adjustment, these will no longer be permitted.
- Index-Linked Reviews with Collars: Many landlords use RPI or CPI-based reviews with a collar that blocks rent from dropping; these collars will be banned.
- Turnover Rent Mechanisms: Clauses allowing rent to increase only in line with turnover growth, but not decrease, will also be prohibited.
This broad scope ensures the reforms capture all devices designed to guarantee landlords’ income regardless of market conditions.
What Still Works Under the New Rules
Despite the ban, landlords retain tools to structure predictable income:
- Fixed or Stepped Rent Increases: These remain lawful, as they are transparent and agreed from the outset.
- Market-Linked Reviews Without Restrictions: Parties can still agree on open-market reviews, but the outcome must be capable of moving both up and down.
- Hybrid Models: For example, combining base rent with a turnover element will still be possible, provided both upward and downward adjustments are honoured.
The reforms do not aim to prevent rent certainty but to ensure fairness in line with real market dynamics.
Impact on Lease Renewals Under the 1954 Act
One of the most sensitive questions for landlords concerns the Landlord and Tenant Act 1954, which governs lease renewals and other aspects of landlord-tenant relationships. The reforms will apply not only to brand-new leases but also to statutory renewals under the 1954 Act. This means:
- Where a lease renews, any upwards-only clause will be replaced with a compliant mechanism.
- Landlords relying on the automatic continuation of such clauses must adjust their expectations accordingly.
- Renewal negotiations will shift towards genuine open-market assessments, requiring expert valuations.
This change has significant implications for portfolios built on upwards-only assumptions, especially for institutional investors.
Tenant-Triggered Rent Reviews: A New Power
A key feature of the reforms is giving tenants statutory rights to trigger rent reviews where landlords delay or obstruct.
Historically, landlords have often benefited from controlling the timing of reviews. From 2025–2026:
- Tenants may initiate a review if the lease is silent or the landlord fails to act.
- Tenants may proceed with the process through arbitration or other mechanisms without the landlord’s cooperation.
- Operational steps, such as serving notice, will be simplified to avoid procedural traps.
This ensures rent reviews occur fairly and punctually, aligning rent with current market conditions.
Anti-Avoidance and No Contracting Out
The Government intends to introduce anti-avoidance provisions. Any attempt to structure clauses that replicate upwards-only outcomes will be void. For example:
- Rebranding a collar as a “minimum base rent” tied to indexation will be unlawful.
- Contracting out of the ban will not be possible – the regime is mandatory.
This mirrors the approach in consumer and housing legislation, reinforcing the tenant-protection ethos.
Practical Steps for Landlords Before 2025
Landlords should take action now to prepare for the upcoming commercial lease reforms. Key steps include:
- Portfolio Review: Identify leases with upwards-only reviews and assess exposure.
- Valuation Adjustments: Recalculate forecasts where income is based on guaranteed upwards-only growth.
- Renegotiation Strategies: Initiate discussions with tenants to transition to compliant models for upcoming renewals.
- Documentation Updates: Ensure standard lease precedents are revised to avoid non-compliance.
- Investor Communications: Reassure lenders and stakeholders of long-term income stability under compliant mechanisms.
Being proactive will help avoid disputes and ensure smoother compliance when the ban takes effect.
How This Affects Landlord-Tenant Negotiations
The reforms shift bargaining power in favour of tenants. Without guaranteed upwards-only clauses:
- Tenants gain leverage in renewal negotiations.
- Rent reviews will more closely track local market fluctuations, benefitting tenants in weaker economies.
- Landlords will need to rely more heavily on market comparables, professional valuers, and expert evidence to support their claims.
While some landlords fear revenue instability, others argue that the reforms could strengthen landlord-tenant relationships by creating fairer and more sustainable terms for both parties.
Impact on Institutional Investors and REITs
Institutional landlords and Real Estate Investment Trusts (REITs) often rely on stable, upward-only income streams. The reforms will challenge this model:
- Reduced Yield Certainty: Investors may need to reprice assets based on genuine market exposure.
- Valuation Shifts: Properties with leases containing compliant review mechanisms may attract different valuations.
- Risk Management: Investors will require more robust forecasting and diversified portfolios to manage cyclical rental swings.
This could reshape commercial property investment, particularly in retail and office sectors.
Wider Market Implications
The reforms are intended not only to rebalance lease terms but also to support wider economic policy:
- Retail Sector Relief: Struggling high-street tenants will benefit from rents that can adjust downward in downturns.
- Business Resilience: More sustainable rent structures should reduce tenant insolvencies.
- Transparency: Rent review processes will be more transparent, reducing disputes.
However, landlords may become more selective about tenants, prioritising covenant strength to mitigate new risks.
Timeline for Implementation
The Government has indicated a phased implementation:
- Draft legislation is expected in mid-2025.
- New leases completed after commencement must comply with these requirements.
- Renewals under the 1954 Act falling due after commencement will be caught.
- A transitional period will likely be in effect for ongoing negotiations, but landlords should not assume long grace periods.
Landlords should closely monitor the secondary legislation and guidance expected to be released in late 2025.
Conclusion
The Government’s decision to ban upward-only rent reviews represents a significant shift in the balance of commercial leasing. By outlawing clauses that guarantee ever-rising rents, the 2025–2026 reforms aim to create fairer, market-responsive rental structures.
For landlords, this requires urgent review of existing portfolios, lease templates, and renewal strategies. For tenants, it offers relief and a more sustainable business environment.
Ultimately, these changes will reshape investment strategies, landlord-tenant negotiations, and the future of commercial property leasing in England and Wales.
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