The End of Upwards Only Rent Reviews

1. Introduction

The English Devolution and Community Empowerment Act 2026 (the Act) received Royal Assent in April 2026 and introduces one of the most significant reforms to commercial leasing in England and Wales for decades: the prohibition of upwards‑only rent review provisions in business tenancies.

Although not yet in force (with implementation expected in or around 2027), the Act materially alters the long‑standing risk allocation between landlord and tenant and will have wide‑ranging implications for drafting, valuation and investment strategy across all sectors, including the office, logistics and retail markets prevalent in the Thames Valley and wider South-East.

This update summarises the legal framework, considers the effect on existing and future leases, and assesses the likely market impact. 

The main initial thing to note is that current practice is unaffected – leases with upwards only rent reviews can still be granted up until date the Act comes into effect and will not be caught by the Act (although the position is more nuanced where there is a renewal or option element – see below).

2. The Current Position: Upwards‑Only Rent Reviews

Upwards‑only rent review (“UORR”) clauses have historically been the market standard in English commercial leases, ensuring that rent can increase (or remain static) at review but cannot fall, even where market rents decline.

These provisions have underpinned:

• institutional investment models and valuation methodologies;

• development-finance structures reliant on predictable income; and
• the transfer of market risk to tenants during downturns.

However, they have also been criticised for contributing to over‑rented properties, tenant distress and high vacancy rates – particularly in secondary retail locations.

3. The New Legal Framework

3.1 Statutory prohibition

The Act provides that, in new (and certain renewal) business tenancies:

• any rent review provision that permits only upward movement (or guarantees a minimum increase) will be unenforceable; and
• the relevant mechanism will instead operate as a two‑way (upwards and downwards) review.

The prohibition captures the principal review mechanisms used in practice, including:

• open market reviews;

• index‑linked reviews (e.g. RPI/CPI); and

• turnover rents,

where the outcome is not fixed at the date of grant.

3.2 Scope

The regime applies broadly to “business tenancies” within (or capable of falling within) Part II of the Landlord and Tenant Act 1954, irrespective of whether the lease is contracted out.

It is not limited to retail and will affect office and industrial assets, typical of the Thames Valley market.

3.3 Non‑retrospectivity (but with important exceptions)

The Act applies as follows:

• Existing leases: not affected.

• Leases entered into between now and the Act coming into effect: not affected.
• Agreements for lease entered pre‑commencement: generally protected.
• Renewal leases (including statutory renewals) and certain option arrangements entered into on or after 17 March 2026: potentially caught.

This “limited retrospectivity” is a key feature requiring careful structuring of transactions currently in progress.

3.4 Anti‑avoidance and ancillary provisions

The Act includes robust anti‑avoidance measures:

• provisions designed to replicate upward‑only outcomes (e.g. side letters or minimum uplifts) will be ineffective;

• requirements for subleases to include UORR provisions will be void;
• tenants may be permitted to trigger rent reviews even where the lease confers that right on the landlord.

Stepped rents and fixed increases remain permissible, as they are fully ascertainable at the outset.

4. Effect on Existing Rent Review Clauses

4.1 Continuing validity

For leases granted before commencement:

• UORR clauses remain valid and enforceable;

• the Act will create a “dual market” of legacy leases (upwards‑only) and new leases (two‑way).

4.2 Subleases and alienation provisions

Provisions in existing leases requiring subleases to include upward‑only reviews will no longer be enforceable, potentially creating misalignment between occupational and investment lease structures.

4.3 Renewal risk

Landlords should note that:

• renewal leases under the 1954 Act will be subject to the ban; and

• options or agreements entered into on or after 17 March 2026 may bring future lettings within scope.

5. Changes to Drafting and Market Practice

5.1 Core drafting shifts

Going forward, rent review provisions must:

• allow rent to move both upwards and downwards;

• avoid any express or implicit floor (subject to future clarification on collars);

• be carefully framed to comply with anti‑avoidance provisions.

5.2 Likely alternatives

We anticipate increased use of:

• genuine upwards/downwards open market reviews;

• dual‑reference clauses (e.g. higher of open market and index‑linked rent), provided they permit downward movement below passing rent;

• stepped or fixed rents, particularly in shorter‑term or value‑add asset strategies;
• shorter lease terms with more frequent reviews, to mitigate downside risk.

The market may also revisit historically unpopular mechanisms such as turnover rents with true variability.

5.3 Transactional considerations

Key practical changes include:

• increased negotiation complexity and valuation sensitivity;

• greater emphasis on rent review assumptions and disregards;

• more detailed financial modelling in heads of terms;

• heightened lender scrutiny of income volatility.

5.4 Forward‑looking drafting and anti‑avoidance risk

It is likely to be ineffective to attempt to include provisions in new leases which seek to “future‑proof” upwards‑only economics, for example by providing that, if legislation were to change, rent reviews would revert to an upwards‑only basis and/or a further review would be triggered at that point.

The Act is expressly supported by broad anti‑avoidance provisions and is intended to invalidate not only express upwards‑only clauses but also any mechanism which, in substance, produces or preserves a one‑way upward ratchet.  In that context, a contingent reversion clause is likely to be characterised as an attempt to circumvent the statutory regime and therefore at real risk of being void or unenforceable.

Even if drafted as a conditional provision, there is no clear mechanism under the legislation for such clauses to “revive” on a future change in law, and they may instead be treated as ineffective from the outset. While it may be possible to provide for additional rent reviews on defined triggers (including changes in law), any such review would still need to operate on a genuine upwards/downwards basis to remain compliant. As a result, market practice is expected to move away from attempts to preserve upwards‑only outcomes and towards pricing and structuring transactions on the basis that rent uncertainty is now a fundamental and permanent feature of commercial leasing.

6. Impact on Market Rents and Investment Value

6.1 Rental levels

The ability for rents to fall at review is expected to:

• place downward pressure on headline rents, particularly in weaker sub‑markets;

• encourage more accurate alignment with true market conditions;
• reduce the incidence of over‑rented space, particularly in secondary retail centres.

In the Thames Valley office market, where supply and demand dynamics vary significantly between prime and secondary stock, this may widen rental divergence.

6.2 Investment valuations

UORRs have traditionally supported capital values by providing:

• income certainty; and
• a hedge against downturns.

The shift to two‑way reviews is likely to:

• introduce income volatility, particularly for multi‑let estates;

• increase yields (reflecting higher risk);
• require adjustments to discounted cashflow and term‑and‑reversion valuations.

Institutional investors (e.g. pension funds) have already expressed concern regarding the impact on portfolio stability.

6.3 Development and lending

For development assets:

• reduced income certainty may affect debt sizing and pricing;

• pre‑lets may require stronger covenants or alternative structures (e.g. fixed uplifts).

6.4 Occupational market dynamics

For tenants:

• improved flexibility and reduced exposure to above‑market rents;
• enhanced ability to sustain occupation during downturns.

For landlords:

• potential reduction in void periods as rents adjust more readily to market conditions, particularly in challenged retail locations.

7. Thames Valley and South-East Focus

In the Thames Valley and wider South-East:

• Prime office and logistics assets (e.g. Reading, Slough, M4 corridor) may see limited immediate impact due to strong occupier demand, but pricing of risk will adjust.

• Secondary offices and retail centres are more exposed to downward rental movements, especially where vacancy risk is already elevated.
• Science and technology hubs may continue to command premium rents, but investors will price greater cyclical risk into review assumptions.

Overall, the reform is likely to accentuate polarisation within the market.

8. Conclusions and Action Points

The abolition of upwards‑only rent reviews represents a structural shift in English commercial leasing. While existing investments are largely protected, future transactions will require a recalibration of risk, drafting and valuation.

For landlords and investors:

• audit pipeline transactions and renewal options carefully;

• revisit valuation assumptions and financing structures;
• consider alternative income‑stabilising mechanisms (e.g. fixed rents).

For tenants:

• leverage increased flexibility in rent negotiations;

• review renewal rights and timing strategies;
• consider proactive use of tenant‑triggered rent reviews where available.

As the detailed regulations and market practice evolve over the next 12–18 months, early engagement and careful structuring will be critical to managing the transition.

For further information, please contact Richard Higgs or Nick Dalgleish