Business Rates Reform 2026: Legal strategies for retail landlords

The Chancellor’s business rates reform, set to take effect from April 2026, is being framed as a rebalancing act. It lifts the burden on small high street businesses while asking larger operators to pay more. According to Savills’ latest Shopping Centre and High Street report (Q3 2025), the reform introduces a higher surcharge of up to 20% on commercial properties with a rateable value above £500,000. The report estimates this could add approximately £600 million in tax burden to major retail operators. Meanwhile, smaller retail, hospitality, and leisure properties under £51,000 rateable value are expected to benefit from relief of up to 40%.

But while the headlines focus on the impact on retailers (store closures, price rises, staffing cuts), shopping centre landlords are facing their own legal minefield. The reform doesn’t just affect your tenants’ P&L; it has direct implications for lease liability, tenant covenant strength, rent review strategies, and the very structure of your landlord-tenant relationships.

For landlords who specialise in shopping centre assets, April 2026 isn’t just a date in the diary. It’s a hard deadline to audit your portfolio, reassess your exposure, and (critically) get ahead of the commercial and legal fallout before your tenants do.

The reform in context

The Savills report highlights a sector already operating under intense pressure. Retail employment has fallen to a record low of 2.78 million, down 97,000 year-on-year. The British Retail Consortium warns that escalating costs are placing “unsustainable pressure” on high street businesses, with two-thirds of retail CEOs planning to raise prices in response to rising tax and employment costs.

The business rates reform is landing on top of this. Retailers (particularly large-format stores, supermarkets, and national chains) are already absorbing increases in employer National Insurance contributions (up to 15%) and a 6.7% rise in the National Minimum Wage. Many are choosing to pass costs onto consumers, reduce staffing, or (increasingly) close underperforming stores.

For shopping centre landlords, this translates into a very real risk. Tenants under financial strain are more likely to trigger break clauses, enter Company Voluntary Arrangements (CVAs), or simply walk away When a tenant’s cost base rises sharply, the first controllable expense they target is often rent.

The question isn’t whether this reform will affect your portfolio. It’s whether you’re prepared for the legal implications when it does.

Reviewing lease liability clauses

The first question every landlord should be asking is who is contractually liable for the business rates increase?

In most commercial leases, tenants are responsible for business rates as part of their occupation costs. However, the drafting varies significantly, and some older leases may contain ambiguities, particularly around liability for structural changes to the rates system itself, rather than routine revaluations.

April 2026 represents a legislative shift, not just a reassessment of rateable value. If your lease obliges the tenant to pay “business rates as assessed,” that’s relatively clear. If the drafting is less precise (“rates and taxes”), or includes carve-outs for increases resulting from changes in law, you may have an argument on your hands.

Tenants facing a 20% surcharge will look for any contractual ambiguity to challenge liability. They’ll also use the timing to their advantage. April 2026 is mid-way through many lease terms, giving them grounds to argue that the increase is an unforeseen change in circumstances warranting renegotiation.

This makes an immediate audit of your lease portfolio essential. Landlords need to identify which leases have clear rates liability clauses, and which are vulnerable to challenge. For leases up for renewal or review before April 2026, rates liability should be explicitly and unambiguously drafted. Standard wording that worked perfectly well for decades may not hold up when a tenant is facing insolvency and looking for any contractual escape route.

Tenant covenant strength

The Savills report notes that Q3 2025 saw a wave of retail casualties. Revolution Bars closed 25 venues, Prezzo continued its downsizing, Buzz Bingo entered a CVA, and Bodycare collapsed entirely. While the causes of individual failures vary, the report highlights that broader cost pressures (including wages, National Insurance, and utilities) are creating unsustainable operating conditions across the sector.

The business rates surcharge will only accelerate this trend. Large-format tenants (department stores, supermarkets, national chains) are precisely the operators hit hardest by the £500,000 rateable value threshold. Many are already operating on thin margins. A potential additional 20% rates burden could tip borderline-viable stores into closure.

For landlords, this means reassessing tenant covenant strength isn’t a “nice to have”. It’s essential due diligence. A tenant who looks stable today may be a CVA risk in 18 months’ time.

Key indicators to watch include:

• Tenants with multiple large-format stores (higher aggregate rates liability)
• Retailers in discretionary sectors (fashion, homewares) where consumer spending is weakest
• Operators already restructuring or closing sister sites
• Tenants whose leases are due for renewal or rent review in 2026-2027 (they’ll be looking for concessions)

If a tenant’s financial position is deteriorating, now is the time to review the strength of guarantees, rent deposits, and any security you hold. Don’t wait until they’re in distress to discover your protections are inadequate.

For high-risk tenants, it’s worth considering whether lease variations negotiated now, potentially offering short-term rent flexibility in exchange for strengthened guarantees or upfront deposits, could protect your position. It’s far easier to extract security when a tenant is solvent and needs your cooperation than when they’re threatening a CVA. Regearing a lease now may help you as well as the tenant.

Rent review timing

If you have rent reviews coming up before April 2026, you may have a narrow window to lock in uplifts before the rates surcharge becomes a negotiating weapon for tenants.

Once the reform takes effect, tenants will argue (legitimately) that their cost base has risen materially, and that this should be reflected in rental tone. In open market rent reviews, this argument has some merit because comparable evidence will reflect the impact of the surcharge on occupiers’ willingness to pay.

If your lease has an upward-only rent review clause, and the review is triggered before April 2026, you may be able to secure an increase before tenants have grounds to resist based on the reform.

Conversely, if you have rent reviews scheduled for mid-to-late 2026, expect tenants to deploy the rates surcharge as leverage. Tenants will argue that market rents have softened in response to increased occupation costs, and will point to comparable evidence of landlords offering concessions to retain tenants.

Mapping out your rent review schedule across the portfolio becomes critical. For reviews due in Q1 or Q2 2026, early engagement with tenants could secure uplifts before the reform narrative takes hold. For reviews post-April 2026, landlords should prepare for tougher negotiations and be ready to justify any uplift with robust comparable evidence.

Service charge disputes

Savills notes that service charges are already a friction point as tenants scrutinise every line item. The business rates reform will intensify this.

Tenants facing higher occupation costs will look to reduce expenses wherever possible. Service charges, often representing a significant proportion of total outgoings, will come under close examination. Expect challenges on:

• Recoverability of specific costs (e.g., marketing levies, landlord overheads)
• Proportionality of charges relative to tenant benefit
• The landlord’s duty to keep costs “reasonably incurred”

If your service charge provisions are loosely drafted, or if you’ve been lenient in enforcing recovery, tenants may now push back hard.

A comprehensive review of your service charge regime for each shopping centre is essential. Costs need to be properly categorised, recovery mechanisms clearly documented, and transparent records maintained to defend challenges. If you’ve historically under-recovered, now is not the time to suddenly escalate charges. It will invite disputes. Instead, phased adjustments with clear justification will stand up better to scrutiny.

Proactive lease restructuring

The best landlords aren’t waiting for tenants to trigger break clauses or propose CVAs. They’re proactively engaging with key tenants to restructure leases in ways that share risk while preserving income.

Options include:

• Turnover rent hybrids: A lower base rent plus a percentage of turnover. This aligns landlord and tenant interests. If the tenant thrives, you benefit; if they struggle, you’ve reduced the risk of void.
• Temporary rent reductions with clawback provisions: Offer short-term relief in exchange for a clawback mechanism if the tenant’s financial position improves.
• Lease extensions with tenant-friendly breaks: Give tenants flexibility in exchange for longer commitment. This reduces re-letting risk while offering them an exit route if circumstances change.

The key is to document these arrangements properly. A casual “let’s reduce rent for six months” conversation is not legally enforceable and won’t protect you if the tenant subsequently enters insolvency. You need a formal deed of variation, with clear terms on duration, clawback, and reinstatement.

Identifying your top 10-20% of tenants by rental income and engaging early, before they’re in distress, can help explore whether lease restructuring could benefit both parties. The goal isn’t to be generous; it’s to mitigate against voids and maintain income stability in a volatile market.

It is important to remain mindful that whilst the business rates reform is complex, it’s not unprecedented. With the right legal strategy and early action, you can protect your position, preserve income, and turn regulatory change into a competitive advantage.