More Ground-Breaking Than the KFC x Greggs Collab?
Hold onto your leases, folks, the English Devolution and Community Empowerment Bill is back, with its second reading due in September. Most of it has little to do with commercial property… until you hit Part 5.
Suddenly, like finding a Noel Gallagher compliment for Liam (a proper needle in a haystack), there it is: a proposal to ban upwards-only rent reviews in new and renewed leases across England & Wales.
For the uninitiated: Upward only rent reviews mean your rent can go up or stay the same but never down, even if the market crashes harder than the first Apprentice candidate. These clauses have been landlord staples since the mid-20th century, designed to protect income against inflation. They’re still standard in most leases over 5 years.
The Government’s pitch? Tenants get stuck paying inflated rents during downturns, squeezing profits, hiking consumer prices, and pricing small businesses out of town centres. Their mission? To make leasing fairer and stimulate growth, cue Bob the Builder theme tune.
But here’s the kicker: what helps tenants now could hurt them later. Expect shorter leases to become the norm. Landlords’ portfolios may lose value, lenders could clamp down, and commercial property investment might shrink faster than a vicuña jumper in a hot wash. Those losses? Tenants might just end up footing the bill.
While some leases (looking at you, diddly squat farm) are exempt, the ripple effects could hit sectors like manufacturing and logistics with unintended consequences.
Ironically, some high street leases are already under 5 years often with no rent review clauses at all. Maybe the Government should focus on regenerating towns, boosting housing supply, and streamlining planning instead?
So, is this the dawn of a fairer lease market or just another “unintended consequences” chart-topper for the Government’s greatest hits? For institutional investors, pension funds, insurers, Real Estate investment trusts, a upward only rent review ban threatens their entire strategy, removing the stable, inflation-linked income stream they rely on for valuations, borrowing, and attracting capital.
Also of relevance, following its consultation on the future of security of tenure for business tenants under the Landlord and Tenant Act 1954, the Law Commission has now delivered its statement and, spoiler alert, it’s not exactly plot-twist territory. The focus was whether the current exclusion for short-term tenancies should be extended. In its first paper, the Commission said it would need substantial evidence to ditch the current “contracting-out” model (where landlord and tenant agree to waive the tenant’s right to renew at the end of the lease). The verdict? Probably best to leave things largely as they are.
These provisional conclusions will shape the process which will get into the technical weeds: possible tweaks to the contracting-out process, lease renewals, and other thrills for property lawyers everywhere. But with the looming spectre of banning upward-only rent reviews, one can’t help but think landlords might look for other ways to secure a tenant’s cheerful surrender of their statutory right to renew. The plot may thicken yet.
Looking across the Irish Sea, Ireland’s 2010 ban on the same, leases shook the market overnight, no consultation, just sudden impact. But investors quickly adapted with shorter leases and break clauses. Overseas investment kept flowing, and the feared collapse never fully materialised.
Remember, Ireland stands out as the only English-speaking country in the Eurozone an exception, an outlier, an emerald jewel for big capital.
For the UK, this isn’t just another policy tweak. It’s a seismic shift for UK commercial property. Whether you’re a pension fund titan or a high street landlord, keep your eyes peeled. The landscape is changing, and as the wise Rafiki said “Change is good.”
For advice and assistance, please contact Arjun Mediratta in our Dispute Resolution team at Rooks Rider Solicitors.
