Westminster Shake-Up Targets Commercial Landlords!

On 10 July, the government dropped a bombshell in Parliament: a new law aimed at prohibiting upwards only rent reviews in commercial leases. The government tucked this in Schedule 31, at the back of a 338 page Bill that deals predominantly local government issues. One that can easily be missed and sail through Parliament without landing on any radar. The English Devolution and Community Empowerment Bill doesn’t just hand more control to councils — it’s also taking a hard look at how landlords hike up lease costs.

🔍 Key Moves in the Bill:

• Upwards-only rent reviews (where rents can only go up or stay the same) could soon be banned in England and Wales for new and renewed commercial leases. That means for the first time, landlords might have to swallow lower rents if the market drops.
• The ban on upwards-only rent reviews will apply to all business tenancies (tenancies where the tenant is occupying the premises for business purposes). It will apply whether or not the lease is contracted out of the 1954 Act.
• Stepped rents (where increases are agreed in advance) get a free pass and will not be prohibited.
• The ban will affect rent reviews governed by (1) traditional market rents, (2) index-linking, (3) turnover rents and (4) side-by-side rents (aka geared rents - rent that is linked to the rent obtained or obtainable by the tenant from its undertenants).
• If the rent review clause in the lease contains an upwards-only rent review, it will be of no effect. The higher amount is not payable. The new rent is what the figure would have been without the upwards-only clause (i.e. if market rents have fallen, the annual rent in the lease will fall too).
• If the rent review process requires a trigger notice to get started, the Bill gives the tenant the right to trigger the process if the lease has allocated this power only to the landlord.  The same applies to referring any dispute for expert determination.

📉 Why the Drama? 

The idea is to protect small businesses and tenants seemingly without regard to landlords/investors. But not everyone’s cheering—landlords and lenders are getting twitchy. With less predictable rental income, it could dent property values and spook banks. Some experts say we could see shorter leases with no rent reviews, just to dodge the rulebook. 

It is early days for the Bill, but if it passes, it will be a seismic shift in how commercial property is let in England and Wales.  It is another example of the challenges commercial landlords will encounter when trying to generate an income/return on their investment.