By David Wells, Development Director, Scarborough Group International
I have worked in property for more than 35 years, and for almost all of that time the upward-only rent review has been standard in commercial leases. Every five years or so the rent was reviewed against the market. If the market had risen, the rent went up. If it had fallen, the rent stayed where it was.
That is about to change. The English Devolution and Community Empowerment Act received Royal Assent on 29 April, and it bans upward-only reviews in new business leases in England and Wales. There is no start date yet. Most lawyers expect it to come into force in 2027 at the earliest, as the government has yet to consult on the detail and the regulations that bring it into force haven't been drafted.
Our view, which won't be shared by every landlord, is that the principle is reasonable. Over fifty years we have found that our schemes do best when the businesses in them are doing well. A rent that can only go up, regardless of how the tenant is trading or what is happening in the local economy, doesn't sit easily with that. The government's case rests on struggling high streets and small businesses facing rent rises they can't afford. We see some of that in Scarborough, where we are redeveloping the former Brunswick Centre as SQ1, so we understand why ministers want to act. The counter-argument is that both parties agreed those terms when the lease was signed.
Once the ban starts, any new lease or renewal that includes a rent review will have to allow the rent to fall as well as rise. Reviews to open market rent, or linked to an index or turnover, will still be permitted as long as they work in both directions (Stephenson Harwood). Fixed rents and stepped increases are unaffected, because the figures are agreed at the outset. Existing leases are not caught. However, renewals agreed with existing tenants on or after 17 March 2026 are, and the parties can't contract out (Mishcon de Reya).
The ban was included in a bill brought forward when Angela Rayner was Deputy Prime Minister. She returned as Housing Secretary in July, so the regulations that bring it into force will be shaped by the minister most closely associated with the policy.
The UK's commercial property investment market is worth just under £600bn. Pension funds own around £32bn of UK commercial property directly and have roughly another £100bn invested in property through funds and other vehicles. Local government pension schemes alone have around 8% of their £402bn of assets in property. It is a relatively illiquid asset, but because an upward-only review means the rent can’t fall, the income has been predictable enough to match against pension payments.
Knight Frank expects long-income and liability-matching funds to be most affected, and thinks some of that money could move into bonds. Its view is that values would adjust modestly if collars are permitted, and more significantly if they are not. Ireland banned upward-only reviews in 2010. The result there was a two-tier market, with older leases valued more highly, and a move towards shorter lease terms.
At the same time, the government is pushing pension funds to invest more in the UK. Under the Mansion House Accord, 17 of the largest workplace pension providers aim to put 10% of their default funds into private markets by 2030, with at least half of that in the UK. The Pension Schemes Act 2026 gives ministers a reserve power to require it. If the government wants pension savings invested in UK property and regeneration, it needs to make sure the income from those investments stays reliable enough to justify the decision.
The ban will also put more pressure on property companies which, in our view, are already undervalued, because the value of their portfolios will be less certain if rents can fall. RICS will need to give valuers clear guidance on how these new leases should be valued. We may also see reviews become more frequent than the usual three or five years, so that rents track the market more closely.
First, the consultation on caps and collars that the government has promised should be published before the ban comes into force. A collar matched with a cap would limit how far rents could move in either direction, protecting tenants from sharp increases and giving investors and lenders an income they can value.
Second, the remaining grey areas need clearing up quickly. The government has already issued guidance confirming that where a lease has more than one reference figure, such as market rent and an index, the higher can be used. More of that kind of clarity is needed, because uncertainty adds cost, particularly on large developments where pre-lets are agreed years before the building is finished.
Third, the ban should be considered alongside the Law Commission's review of the Landlord and Tenant Act 1954. Its second consultation closed in September and contains some sensible proposals, including contracting out through the lease itself rather than through separate statutory declarations, taking very short lettings out of the regime, and allowing landlords to recover premises for retrofit as well as redevelopment. The 1954 Act needs updating, but if the two reforms are brought in separately there is a risk that leases become harder to draft and harder to value.
Our approach has never depended on lease clauses. At Thorpe Park we have kept investing in the place for 25 years, adding shops, leisure, parkland and homes alongside the offices, because that is what keeps occupiers coming. If rents can move both ways in future, landlords who look after their buildings and their tenants should cope well.
The Chancellor, John Healey, delivered his first Budget on 28 October. There was plenty in it for property, including more business rates relief for small retail, hospitality and leisure firms and stamp duty relief for local government pension schemes moving property into their new pools. It said nothing about when the ban will start or when the consultation on caps and collars will be published. That now sits with Angela Rayner’s department, and we’d urge it to set out a timetable soon. When the consultation comes, we will respond to it, and we would encourage other long-term owners to do the same. If there’s one thing I’ve learned in 35 years, it’s that the property market is remarkably good at adapting to change.
This is general commentary, not legal advice.
