Proposal to Outlaw Upwards Only Rent Reviews

On 10 July 2025, the Government introduced the English Devolution and Community Empowerment Bill (the Bill). The purpose of the Bill is to deliver devolution across England and ‘tool up’ communities to shape their local areas. There are some unexpected proposals in the draft legislation, including in the commercial property context – in particular, a proposed ban on all upwards only rent reviews for new (commercial) leases in England and Wales (referred to as ‘U-ORB’ in this article).

Why? The aim of U-ORB is to stall, and ultimately revitalise, rapid decline across existing British high streets, which have seen thirty-eight stores closing per day in 2024. The intended stimulation of the local retail economy, falls squarely within the Government’s wider and well-publicised pro-growth agenda. However, instead of limiting the change (U-ORB), to classic retail high street uses, the proposal currently includes all commercial property– which seems likely to trigger the law of unintended consequences, a point that we return to later in this article. 

Rent reviews generally

Upwards only rent reviews (UORRs) are provisions found in leases that allow the tenant’s rent to be reviewed periodically (e.g. every five years) but are traditionally drafted to only permit the rent to either increase, or remain the same, i.e. never to decrease, irrespective of the point in the economic cycle that the review occurs on. 

UORRs have become a standard provision across the British commercial property market due to a multitude of benefits. For example, UORR arrangements provide landlords with a reliable and consistent income stream, which is particularly beneficial for long-term financial planning and investment projections. Investors like the fact that the returns are hedged against inflationary fluctuations. Since rental income plays a crucial role in determining the capital value of commercial property (and assessing the level of risk associated with an asset), UORRs can effect an enhancement to asset valuations, which in turn helps in refinancing opportunities and/or a property’s marketability.

Unpacking U-ORB

U-ORB, as set out in the Bill, affects any rent review mechanism that only permits the rent to increase where the amount of the new rent is not fixed/prescribed within the terms of the original lease (i.e. so the amount of the later rent(s) is/are certain at the outset of a lease term). 

U-ORB is expressed to apply to all new commercial leases (including renewals) granted after the legislation comes into force. U-ORB is not retrospective in its application and will apply to leases whether they fall “inside” or “outside” the security of tenure regime for commercial tenants as set out Part II of the Landlord and Tenant Act 1954.

Steps, caps, collars and more besides….

Stepped rents, usually where rent(s) increase(s) at (a) pre-agreed interval(s) by (a) pre-determined amount(s) on each anniversary (but may take another similar form, as agreed by the parties), will not be prevented under this legislation.

Additionally, caps and collars are not explicitly prohibited under the Bill, but no real substance appears to have been provided on this to date. Variable index-linked rent reviews will not be included within the ambit of U-ORB, provided that they enable the rent to go up and down. 

In the Government’s attempt to prevent avoidance provisions, parties to the lease will not be able to “contract out” of U-ORB and no informal (side) arrangements will be permitted.

Accordingly, U-ORB appears to amount to an almost blanket ban. 

So who will U-ORB affect? 

For tenants, U-ORB could provide greater flexibility and fairness especially in times of economic downturn. Traditionally, landlords have however been alive to the tenant’s outgoings when taking on new space, with rent free periods and/or capital contributions being offered to the tenant to mitigate against the cost of fit-out. The lease is structured to manage this initial bump in cash-flow, to benefit both parties.

By introducing uncertainty for the landlord and their lender in the income stream for the property, landlords likely will want to increase rents to leave the cost of the fit-out with tenants - as the landlord will no longer be certain of the financial return generated from the premises. Parties may also see an increase in the inclusion of a ‘works rent’, with a fixed rate of interest accruing against the additional sums for fit-out. 

For landlords, reduced income certainty runs the risk of potentially driving away long-term investors pursuing guaranteed returns in a sector that needs long term support and investment. Furthermore, commercial loans may become harder to obtain for landlords, as lenders will no longer have a degree of certainty provided by a UORR – they will need to balance in their appraisal the fact that rental income may reduce over the term(s) of the relevant lease(s) against other relevant matters - including tenant covenants, break clauses and termination provisions.

We are already seeing a reduction in lease lengths across the different sub-sectors of the commercial environment. U-ORB may mean that the use of different methods of review increase from the UORR based on market rents we are used to seeing.

Consideration also needs to be given as to how other structured finance arrangements via leases would operate in practice to ensure a return on the investment. Are these intended to be caught by U-ORB - if not, do we need exclusions for these instruments to be built in to the draft Bill?

Impact of U-ORB and Unintended Consequences 

Superficially, U-ORB seems to be a big deal, removing a well-known part of the price structuring for use of commercial space. However with lease lengths for occupiers shortening across the sector and the increased use of indexations for rent reviews, the draft Bill seems to miss an opportunity, concerning the causes of the difficulty in the high street retail sector that it was intended to fix.

The costs of operating a bricks and mortar store or business on the high street are high especially when compared with the cost of warehouses and the associated costs of logistics for the home delivery model. Both give the end-users an entirely different experience and both have value. The High Street should be a place we meet and interact and share experiences of buying goods, services but also in the F&B sector. Business rates would seem to be a more obvious area to overhaul first, so that the new life can be breathed into the High Street, acknowledging the symbiotic role of the businesses located within that ecosystem and customers acknowledging that there is a place-maker role being played here... 

Arguably therefore, the Bill seems to target the wrong problem. Over-supply of shops, influenced by the growth of online retail reflecting changing consumer patterns, are perhaps the real cause of the declining high street, and something the Bill does not address. 

The Bill may unwittingly create further distress, by reducing the investment appeal of the high street asset class, at a point where it needs investment or, in some cases, re-purposing as part of an overall placemaking strategy.

What have other people said and where next?

The proposed reform is certainly polarising and will likely to continue to generate substantial debate moving forward. As the Bill moves into its second reading in the House of Commons, currently scheduled for 2 September 2025, we will be keeping an eye on proceedings. 

The British Property Federation’s Industrial Committee has expressed concerns about U-ORB, citing the need for a more nuanced approached on the basis that a ‘one size fits all’ approach will likely have unintended consequences across the sector. 

To offer a contrasting view, Mark Allan, CEO of Landsec, has called U-ORB “an opportunity to move away from a complex and often adversarial structure.”

It will therefore be interesting whether: 

• U-ORB is enacted in its current formulation, or
• is more clearly targeted at the retail sector, and/or
• more nuanced alternative option is promoted which allows for a rent review of the higher of either the market rent or the indexed rent without it being strictly upward

Only time will tell which way the Government goes on this, and it may of course be that the whole proposal is dopped in time for the New Year sales!