The unintended consequences of the ban on upwards-only rent reviews

On 10 July 2025, the Government published the English Devolution and Community Empowerment Bill (the Bill), which proposes to ban upwards-only rent review (UORR) clauses in new and renewal commercial leases governed by the Landlord and Tenant Act 1954 (the LTA 1954).

If enacted, the ban would apply to all ‘Affected Leases’, being leases granted to tenants for business purposes, whether or not contracted out of the security of tenure protections under the LTA 1954 from the Bill’s implementation date (the Implementation Date).

The Government claims the measure will help “end upwards-only rent review clauses in commercial leases to prevent vacant shops and regenerate high streets”. However, as currently drafted, the ban applies to all commercial assets – from logistics warehouses and data centres to offices and hospitality premises – far beyond the retail sector.

Critically, the proposal has arrived without consultation and could fundamentally alter the balance of power between landlords and tenants, with profound implications for lenders, investors, and the wider UK property market.

Understanding OURRs

UORR clauses have been standard market practice for decades. They allow rents to increase at review dates but not decrease, regardless of market conditions. Rent reviews are typically linked to open market value, turnover, or inflation indices.

For landlords, UORRs provide: predictable, stable income, which is essential for institutional investors and REITs; protection against market volatility, supporting consistent yields; and a hedge against inflation, particularly during uncertain economic periods.

For tenants, UORRs can offer: lower initial rents or greater incentives, as landlords have confidence their rent will not fall; longer lease terms, where predictable rental income allows landlords to commit for longer; and increased flexibility in negotiations, as landlords are more willing to offer fit-out contributions, rent-free periods, or service charge caps when their return is safeguarded.

The primary criticism of UORRs is that tenants do not benefit when market rents decline, often leaving them paying above-market rents during downturns – a key concern the Bill aims to address, although we expect that it will have the opposite effect, as explained below.

The Bill’s proposals

The proposed reforms will not apply retrospectively but would affect all affected leases granted or renewed after the implementation date. The ban would:

1. Prohibit UORRs in new commercial leases.
2. Prohibit UORRs in renewal leases, even where an existing lease included such a clause.
3. Prohibit index-linked or turnover-based rent reviews that include a minimum (‘floor’) rent.
4. Include robust anti-avoidance provisions to prevent disguised upwards-only mechanisms.

The Bill will not affect:

1. Rent review provisions allowing rents to move both upwards and downwards.
2. Rent review clauses in licences to occupy or transitional service agreements.
3. ‘Day-one’ reviews in leases entered into under pre-existing agreements for lease, reversionary leases, or options agreed before the Implementation Date.

The proposal has prompted immediate concern across the property industry. While talk of banning UORRs has circulated for years, this sudden and consultation-free proposal has caught the sector off guard. It also represents a significant policy shift, as Government has historically avoided direct interference in commercial contracting.

Impact on institutional investors and lenders

Institutional investors argue that the ban could:

1. Undermine the UK’s attractiveness to both domestic and international capital seeking predictable, inflation-linked income.
2. Increase perceived risk, prompting lenders to tighten credit and reduce leverage ratios.
3. Dampen development appetite, particularly for speculative commercial schemes that rely on predictable rent uplifts for viability.

There are also structural risks for intermediate landlords. A landlord holding a headlease with an UORR may still be obliged to pay rising rent to its superior landlord, even though it is prohibited from passing those increases on to its undertenant. This asymmetry could lead to a cashflow deficit and potential covenant breaches, particularly in multi-tiered ownership structures.

Tenant impacts

While the Government’s stated aim is to protect tenants from paying above-market rents during downturns, the market response may produce the opposite effect. Early commentary suggests landlords are likely to adjust commercial terms to rebalance risk.

Expected consequences include:

1. Shorter lease terms: particularly leases contracted out of the LTA 1954 security of tenure provisions, leaving tenants with less long-term certainty.
2. Reduced incentives: fewer rent-free periods, lower fit-out contributions, and stricter break conditions as landlords protect their yield.
3. Higher initial rents: landlords may frontload pricing to offset future risk of rent reduction.
4. More frequent dilapidation claims: with reinstatement costs and professional fees recoverable from tenants, disputes and litigation are likely to rise.
5. Prolonged lease negotiations: both sides will need to remodel cashflow assumptions and risk exposure, slowing deal completion.

It remains too early to tell whether tenants will ultimately benefit from rent flexibility during downturns, as intended, or face higher entry costs and reduced lease security.

Wider implications

The proposal, while politically appealing, may unintentionally destabilise core areas of the commercial property market:

1. Valuation and funding: without UORRs, long-term income streams become harder to forecast, potentially depressing asset valuations and widening lending margins.
2. Lease restructuring: landlords may increasingly adopt turnover-based leases or stepped rent models, creating greater administrative and financial complexity.
3. Sector divergence: retail and hospitality may adapt faster to variable rents, but industrial and logistics sectors – where long-term fixed income is critical – could be disproportionately affected.

Next steps

The Bill is at an early stage, and significant lobbying from the property sector is expected. Given the absence of prior consultation, industry stakeholders, including institutional investors, pension funds, and major landlords, are likely to press for either sector-specific exemptions, (e.g. hospitality, logistics, infrastructure, or data centres) and/or modified review mechanisms, allowing rents to move both ways within controlled parameters (e.g. CPI-linked reviews with caps and collars).

The House of Lords is expected to raise questions regarding the economic modelling underpinning the proposal, particularly the potential impact on high-street regeneration and investment confidence.

Until further clarification is provided, landlords, tenants, and investors should:

1. Review current and pipeline transactions to identify any potential exposure.
2. Consider executing agreements for lease before the implementation date to preserve existing rent review flexibility.
3. Model the financial and valuation impact of a no-UORR environment, particularly on reversionary yields and loan covenants.
4. Monitor secondary legislation and accompanying guidance expected in early 2026.

While the Government’s intention to revitalise high streets and protect tenants is understandable, the blanket ban on UORRs risks creating uncertainty, increasing costs, and undermining investment across the wider commercial property market.

By removing a long-standing mechanism for rental stability, the Bill could inadvertently deliver the opposite of its intended outcome: reduced development, higher initial rents, and shorter, less secure leases.

Stakeholders should remain vigilant, engage with policymakers during the legislative process, and prepare to adapt their leasing and investment strategies in anticipation of a fundamentally reshaped commercial property landscape.

If you have questions or concerns about UORRs, please contact Nadia Milligan.