A turning point for commercial rent reviews?

It’s a development that few in the sector saw coming. With little preamble, the Government has announced plans to outlaw upwards-only rent reviews in all new commercial leases in England. Long a staple of institutional leasing, these clauses have offered landlords reassurance and investment stability. But if the proposals go ahead as suggested, we may be looking at one of the most significant shifts in landlord-tenant dynamics in recent years.

Where we were before

Upwards-only rent review clauses have underpinned much of the UK’s commercial leasing framework for decades. The principle is straightforward: at set intervals (typically every five years) the rent is reviewed against market value, but can only stay the same or go up. Crucially, however, the rents cannot contractually go down – even if market rents fall.

Landlords benefit from a predictable income stream, lower risk, and protection against falling value, which can help to maintain asset pricing and investor confidence. In many cases, the model has been seen as non-negotiable, particularly in prime retail, office and logistics assets.

From the tenant side, there’s long been a degree of resignation. While upwards-only clauses can be tough in weaker markets, they’ve often been accepted as a necessary trade-off to secure premises in desirable locations or under competitive letting conditions.

Despite criticism, especially during market downturns, the approach has proved remarkably resilient. In truth, there’s never been a serious legislative threat to it in England.

That is, until now.

A policy change without warning

On 9 July 2025, without prior preamble or warning, the Government issued an announcement, embedded in the English Devolution and Community Empowerment Bill, stating that it would legislate to ban upwards-only rent reviews in all new commercial leases in England. The announcement formed part of a broader initiative aimed at helping high street and SME occupiers address the perceived imbalances in commercial landlord and tenant relationships through providing a more flexible and tenant-friendly leasing system.

The Department for Levelling Up, Housing and Communities (DLUHC) described such rental clauses as distorting market realities and unfairly locking tenants into artificially high rent trajectories. Their view is that rents should rise or fall according to market evidence, not drafting conventions.

What caught many off guard was the lack of consultation beforehand. The change wasn’t flagged in advance or set out in a policy paper. For an industry that thrives on clarity and long-term planning, it was a disorienting moment.

What we don’t yet know

At this stage, the Government’s proposal remains light on technical detail. We don’t yet know whether the restriction will apply solely to newly granted leases or whether statutory renewals under the Landlord and Tenant Act 1954 will also fall within scope. Nor is it clear how far the ban will stretch – will hybrid structures, turnover rents or index-linked clauses with zero floors be permitted? Could stepped rents fall foul if they effectively guarantee upward movement, regardless of market conditions?

The Government has launched a consultation, but it appears focused more on the logistics of implementation than on revisiting the policy itself. The principle, that upwards-only clauses distort the market and should be prohibited, seems settled.

For landlords, this introduces a degree of legal and commercial ambiguity. Many existing lease precedents, particularly institutional models like the Model Commercial Lease, may need to be redrafted or rethought entirely. Without the certainty of an upwards-only mechanism, rent review clauses may take a variety of new forms. Market reviews, turnover-based rent, and indexation may all see greater uptake. But how those alternatives are regulated or constrained remains to be seen.

The market reaction has so far been mixed. Tenants, particularly those in sectors where margins remain tight, have responded with cautious optimism. But for funds, institutional landlords and developers, the announcement introduces fresh risk, and many are grappling with the prospect of downward rent adjustments. Asset valuations, funding models and investor appetite may all need to be reassessed, with the potential volatility raising the obvious question – What happens to income projections when rent can go both ways?

This isn’t merely a technical change. It’s a fundamental shift in the risk profile of commercial letting, and one that will require careful navigation.

Why this matters to landlords

If enacted in its current form, the policy could materially alter how commercial assets are underwritten and valued. Upwards-only clauses have long underpinned capital value assumptions, especially for long-term or pre-let schemes. With that element of predictability removed, there may be pressure to reprice risk across the board.

In the development funding context, assumptions around rental growth are already being reconsidered. If ratchet mechanisms are no longer viable, how does that affect returns, or debt coverage ratios? Will lenders take a more conservative view? Probably. Will some marginal schemes be put on ice? That’s a real possibility.

Landlords may also look to rebalance risk in other areas of the lease. If guaranteed rental uplifts are off the table, we may see firmer positions on alienation, break rights or tenant incentives. In that sense, the change could have knock-on effects across the entire lease negotiation.

What about the tenants?

From a tenant’s perspective, the proposed reform may feel long overdue. In sectors where demand is flat, or declining, the ability to negotiate a rent reduction at review could offer much-needed breathing room. For some operators, especially in hospitality or secondary retail, it might prove the difference between survival and surrender.

That said, tenants shouldn’t assume this is an unqualified win. If landlords can no longer rely on income growth over time, they may be less inclined to offer upfront incentives, such as rent-free periods or contributions to fit-out. Flexibility on rent may come at the cost of value elsewhere in the deal.

And in a more fluid rent review environment, the scope for dispute may increase. If market evidence becomes a more active battleground, both sides will need to invest time, and often professional fees, into negotiation and valuation.

A more complex leasing market?

If upwards-only clauses are consigned to history, lease negotiation will likely become more bespoke. Turnover rents, hybrid models, caps and collars may all feature more prominently. That opens the door to innovation, but also increases complexity.

Standard precedents may no longer fit the bill. Boilerplate assumptions will need to be revisited. And while some clients will embrace the flexibility, others, particularly institutional investors, may find themselves in less familiar territory.

What’s clear is that we are entering a new era of leasing. The shift may drive better alignment between landlords and occupiers, but it will require a more nuanced approach to risk-sharing and value.

A change that sticks?

Some market voices remain sceptical that the legislation will proceed exactly as drafted. But the political momentum is real, and the optics, at least from the Government’s perspective, are compelling. Many commentators now see the end of upwards-only clauses as inevitable.

For landlords, that means it’s not too early to act. Reviewing lease precedents, rethinking deal structures, and engaging with advisors now could make the difference when the change comes.

Whatever the legislative timetable, one thing is certain: the commercial lease, long governed by fixed assumptions and familiar mechanics, is entering a period of flux. Landlords, tenants and advisers alike will need to adapt, with a focus on flexibility, foresight, and above all, commercial realism.

At Newmanor Law, we’ll be monitoring developments closely, and supporting our clients as they navigate what comes next.