DFA Law
Commercial leases – upwards-only rent reviews
Amy
Cornelius Property Lawyer DFA Law
T e government announced on April 29 that the English Devolution and Community Empowerment Act 2026 received Royal Assent. The act will introduce a ban on upwards-only rent reviews (UORRs) in commercial leases in England and Wales, resulting in the potential for rent to go down, as well as up. T e act is not expected to come into full force until 2027 or 2028, following secondary regulations. Given that such a mechanism for reviewing rent, used
across the market, is being banned, there is concern within the industry that there has not been any real consultation as to how this will work in practice and it is hoped that there will be further government consultation before implementation.
Aff ected leases ■ New leases: all new leases and lease renewals agreed after the commencement date. However, if there is a ‘pre-commencement arrangement’ in place prior to the commencement date (e.g. an option or agreement for lease), the ban will not apply to the lease, even if granted after the commencement date, meaning the UORR provisions will still apply. T ere is a caveat to this, see Retrospective Traps below.
■ Existing leases: leases (including reversionary leases) granted before the ban takes eff ect are exempt and UORR clauses will be enforceable as normal.
Amy Cornelius
■ Subleases: the ban will apply to a headlease granted after the commencement date, even where the head tenant is not occupying the premises themselves. A sublease granted after the commencement date will also be caught. However, if the headlease predates the ban (and UORR provisions apply), but the sublease is granted after the commencement date (and is subject to the ban) this could result in a potential shortfall for the head tenant. Furthermore, where the headlease is not subject to the ban, and its terms require any sub- lease to include UORRs, the act varies the headlease to permit the sublease to include any terms for rent review that the parties may agree.
■ Retrospective traps: if an existing lease includes an option to renew that was granted on or after March 17 2026, that renewal lease will be subject to the ban.
Permitted v banned mechanisms for rent review ■ Permitted: stepped or fixed rent increases, current market rent or index-linked reviews. Rent reviews to the higher of market rent and indexed rent will be permitted, provided neither are expressed to be upwards-only.
■ Banned: the higher of passing rent or open market rent (‘higher of’ clauses), will no longer be enforceable.
T e use of caps and collars; a mechanism which sets a limit on the maximum rent can increase or the minimum rent must increase, is expected to be consulted on. Whilst a cap does not contravene the ban, collars will be more prob- lematic, and landlords will want some certainty as to the level of income they can expect to generate from a lease.
New tenant rights Tenants will also be given the statutory right to trigger and progress a scheduled rent review, a right only reserved for the landlord currently. T is will prevent landlords seeking to avoid the ban by denying tenants the ability to take advantage of a rent review where the rent is likely to decrease.
For further advice, contact the Commercial Property team at DFA Law on 01604 609560 or visit
www.dfalaw.co.uk
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