Upwards-only rent review ban: Royal Assent and a retrospective element

Summary 

• The ban on UORRs is not yet in force, although we understand this is likely to come into effect at some point in 2027.
• The ban will apply to all business tenancies in England and Wales (commercial leases to which Part II of the Landlord and Tenant Act 1954 (1954 Act) applies). This includes "contracted-out" leases and leases to which Part II would apply if the tenant were in occupation (e.g. superior tenants which have sub-let and would not normally attract 1954 Act protection).
• What will not be permitted is an upwards-only review mechanism where the potential rent increase is not ascertainable at the time of lease grant. Therefore, open market, index-linked or turnover reviews coupled with an upwards-only element, will be caught. Stepped or fixed rental uplifts and upwards/downwards reviews will be allowed. Other exceptions may be brought into force through secondary legislation.
• We understand that there have been indications from the Government that guidance will be forthcoming which would indicate that a review to the higher of two upwards/downwards review mechanisms would be permitted.
• Business tenancies granted after the relevant provisions of the Act are in force will be caught.
• Business tenancies granted pursuant to contracts made before the relevant provisions of the Act are in force will not be caught. However, there is now an exception: where a tenancy renewal arrangement has been entered into on or after 17th March 2026, the lease granted pursuant to that arrangement is potentially caught.
• Lease renewals granted pursuant to the 1954 Act and after the relevant provisions of the Act are in force will be caught.
• Where any business tenancy (whether granted before or after the relevant provisions of the Act are in force) requires that a sublease contain an UORR, that requirement will be ineffective once those provisions are in force. In addition, the Act says that the review terms are to be agreed between the landlord and tenant of the sublease, meaning the superior landlord loses control of how the sublease rent review is operated.
• If there is a rent review mechanism in a lease which only the landlord can trigger, the Act allows the tenant to also trigger that review (thus preventing landlords only triggering a review in an upwards market).
• There are anti-avoidance provisions preventing side arrangements which would require tenants to pay top-ups where rent has been reviewed downwards.
• We understand that the Government has committed to consulting on allowing collars (possibly with associated caps), which would potentially be introduced via secondary legislation.

How would the ban work?

Where a review/initial rent calculation is caught by the Act, it will effectively remove the upwards-only element. For example, if there is a review to the higher of the open market and passing rent, where the open market is £50k p.a. and the passing rent is £55k p.a., the new rent would be £50k p.a. 

New retrospective element for tenancy renewal arrangements

The UORR ban will now apply to rent payable at the start of a new lease (and on any subsequent review during the term) granted pursuant to a “tenancy renewal arrangement” (widely drafted to include a put option, call option or simply an agreement for lease with the existing tenant) where the “tenancy renewal arrangement” has been entered into on or after 17 March 2026. 

The “tenancy renewal arrangement” could be contained within an existing lease (e.g. a contractual option to renew contained in a lease which is granted on or after 17 March 2026) or in a separate document dated on or after that date. 

The drafting of the Act appears to contain some ambiguity around whether a lease granted pursuant to a tenancy renewal arrangement entered into on or after 17 March 2026, but which lease is granted before the relevant provisions of the Act are in force, would be caught by the ban. It is thought this scenario has not been fully considered and there may be potential for challenge on the point.

Impact 

• The impact on rental income serving debts should not be underestimated if upwards-only rent reviews are prohibited.
• Tenants will welcome the opportunity for downwards review, but, if enacted, the proposals will undoubtedly change the way leases are negotiated. Landlords may seek to price-in fixed uplifts, and tenants may seek other advantages in return.
• Leases may be offered at a higher starting rent as a protection for landlords and investors although this would require buy-in from prospective tenants.
• The Act is likely to affect pricing and investment management, particularly for longer-term income assets. Contractual renewal options will start being considered cautiously now, even before the relevant provisions of the Act are in force.
• Will we see more index-linked reviews in leases where the likelihood of negative movement on the index is slim? 
• According to the Government in its original announcement, stakeholders reported that “upwards only rent review clauses are artificially inflating commercial rents and ultimately pricing out small businesses from town centres”. Whether the ban will have the positive impact the Government hopes, remains to be seen. Many leases granted to small businesses on the high street, for example, are not of sufficient length to include rent review provisions in any event.
• The proposals may focus investors on finding that rare asset class which escapes capture from both these proposals and residential renter reform.
• Any drafting seeking to benefit from current ambiguity in the drafting of the legislation, needs to also work if the Government does move to clarify that leases pursuant to tenancy renewal arrangements, but granted before the relevant provisions of the Act are in force, cannot contain UORRs.

What next?

We await consultation on caps and collars but there is no guarantee that investors’ concerns will be heard. We also cannot rule out any further changes pursuant to secondary legislation. The Act does permit the Secretary of State to make regulations creating exceptions to the ban which may narrow the application to certain types of property. 

We also await Government Guidance on the legislation.

As the prohibition does not apply to existing leases, landlords should consider how the proposed ban could impact future rent projections on voids and space coming up to lease-expiry, as well as how that will impact on income stream requirements from lenders.

Both landlords and tenants should consider any current negotiations for new leases and tenancy renewal arrangements which are underway and whether this Act receiving Royal Assent gives them more or less leverage.