How will your commercial property investments be affected by major legislative changes? A significant proposal is working its way through Parliament that could fundamentally alter the landscape of commercial leasing in the UK. The government has introduced a bill aiming to ban upwards-only rent review clauses (UORRs) in new commercial leases, a move that will have far-reaching consequences for landlords and investors.
For decades, UORRs have provided a safety net, guaranteeing that rental income will never decrease. But with the government arguing they create unfair conditions for tenants and harm high streets, what does this proposed ban mean for you? We will explore the details of the bill, its potential impact on your portfolio, and the practical steps you can take now to prepare for a new era of commercial leasing.
What Are Upwards-Only Rent Reviews?
Upwards-only rent reviews have been a standard feature in UK commercial leases for over half a century. But what exactly are they?
A UORR clause ensures that when the rent is reviewed (typically every five years), it can only increase or stay the same. It can never go down, even if the wider property market has declined. These clauses became common in the post-war era of the 1950s and 1960s as a way for landlords to protect their income against high inflation. For investors and lenders, this mechanism provided long-term income certainty, making commercial property an attractive and stable asset class.
The government, however, now sees UORRs as a major obstacle to a fair and flexible rental market. The argument is that they force businesses, particularly on the high street, to pay rents that are disconnected from current economic conditions. This can lead to financial strain, business closures, and a decline in local economies. By proposing a ban, ministers hope to rebalance the relationship between landlords and tenants and create a more dynamic market where rents can adjust to reflect reality.
What Does the Proposed Ban Involve?
On 10 July 2025, the government introduced the English Devolution and Community Empowerment Bill, which includes provisions to prohibit UORRs. How will this new legislation work in practice?
The core of the proposal is to insert new schedules into the Landlord & Tenant Act 1954. These changes would make it illegal to include upwards-only clauses in all new commercial leases and any renewal leases granted after the law comes into effect. It’s important to note that the ban is not retroactive, so your existing leases with UORR clauses will remain valid until they come up for renewal.
The ban targets any provision where rent is reviewed against a variable factor, such as the open-market value or an inflation index, but is prevented from falling.
Key aspects include:
- Open-Market Reviews: Future leases must permit rents to move both up and down in line with the prevailing market conditions.
- Index-Linked Reviews: While reviews linked to inflation (like RPI or CPI) will still be allowed, clauses that set a minimum uplift or “collar” will become unenforceable.
- Fixed Increases: Leases with pre-agreed fixed or stepped rent increases are not affected by the ban, as these provide certainty for both parties from the start.
- Turnover Rents: Clauses that link rent to a tenant’s turnover are permissible, provided the rent can fluctuate both ways.
The legislation also includes anti-avoidance measures to prevent landlords and tenants from using side agreements to get around the new rules. The ban will apply to all business tenancies covered by Part II of the 1954 Act in England and Wales.
What Are the Implications for Commercial Landlords?
The end of UORRs signals a significant shift in risk. For generations, landlords have relied on this mechanism for predictable income streams. What might the future look like without it?
Income Volatility and Valuations
The most immediate consequence is the potential for income volatility. If market rents fall, your rental income could decrease at the next review. This lack of certainty could have a knock-on effect on property valuations. Lenders have historically favoured the stability offered by UORRs, and their removal may lead to more cautious lending practices and potentially lower investment portfolio values.
A Change in Lease Negotiations
How will this change the way you negotiate leases? Landlords will likely seek alternative ways to mitigate risk. We may see a move towards:
- Shorter lease terms to allow for more frequent reassessment of market conditions.
- Higher initial rents to compensate for the added risk of future downturns.
- Greater use of break clauses, giving both parties more flexibility.
- A preference for index-linked reviews or fixed rental uplifts, which offer a different form of predictability.
These changes could make lease negotiations more complex and potentially lengthen void periods as parties adapt to the new landscape.
A Broader Sector Impact
While the government’s focus is on supporting high-street retail, the ban will apply across all commercial sectors. The property industry has raised concerns about the unintended consequences for areas like manufacturing and logistics, where long-term, stable rent agreements often underpin significant capital investments.
How Can You Prepare for These Changes?
With the bill now progressing beyond its early stages in Parliament, proactive landlords should start planning now. What practical steps can you take to prepare your portfolio?
- Audit Your Existing Leases: Start by identifying all leases in your portfolio that contain UORR clauses. Note their expiry and renewal dates, as any renewals granted after the ban takes effect will be subject to the new rules.
- Review Ongoing Negotiations: If you are currently negotiating a new lease, consider the timing. You might want to conclude the deal before the ban is implemented. Alternatively, begin exploring alternative rent review mechanisms that offer a degree of income security, such as stepped rents or turnover-based models.
- Assess the Portfolio Impact: How would downward rent reviews affect your business? Model different scenarios to understand the potential impact on your cash flow and any loan covenants you might have. It may be wise to open a dialogue with your lenders and investors about these potential changes.
- Engage with Stakeholders: The property industry is actively lobbying the government on this issue, arguing that the lack of consultation could undermine investor confidence. Stay informed by following updates from bodies like the British Property Federation and consider participating in industry consultations.
- Plan for More Flexible Leasing: The future of commercial leasing is likely to be more dynamic. Start thinking about how you can adapt your strategy. This could involve offering shorter leases, incorporating different rent review formulas, or exploring other value-adds like green lease provisions to attract and retain tenants.
A New Chapter for Commercial Property
The ban on upwards-only rent reviews represents one of the most significant shifts in commercial property law in decades. While tenants are likely to welcome the potential for fairer rents that reflect market realities, landlords face a period of adjustment. The certainty that has underpinned the market for generations is set to be replaced by a more volatile, but perhaps more dynamic, system.
With these changes now moving forward, commercial landlords should assess their strategies and prepare for the evolving landscape. Alongside your approach to leasing and rent reviews, don’t overlook the importance of comprehensive commercial inventory reports they can help protect your assets, enhance transparency, and minimise future disputes.
Need expert support? Contact Skribes today to discuss how our commercial inventory services can help you safeguard your investment and move forward with confidence.