Upwards-only rent reviews (UORRs) have long been a standard feature of business leases in England and Wales, providing certainty of income for landlords, investors and lenders. However, the English Devolution and Community Empowerment Act 2026 has the potential to change all that.
Although the Act is not yet in force, a last-minute amendment to the legislation means that those involved in commercial leasing strategy need to consider the potential impact of the legislation today.
The Act received Royal Assent on 29 April 2026, but its provisions will not take effect until brought into force by secondary legislation. Amongst a raft of other measures, the Act will introduce a statutory ban on UORRs. The precise timing of commencement of the ban is, as yet, unknown but the market does not expect this to be before 2027. However, the proposals are already having a tangible impact on the market and should be taken into account in any current commercial leasing strategy.
A summary of the UORRs ban
In broad terms, the legislation will prohibit rent review mechanisms in new business tenancies which operate by imposing a floor beneath the outcome of a rent review calculation. Where a lease would otherwise prevent the reviewed rent falling below the current passing rent, that constraint will be disapplied so that the review outcome follows the recalculated figure, regardless of whether it produces an increase or a decrease in rent. This is expected to capture upwards-only wording in open market rent reviews, index-linked reviews and turnover-based mechanisms.
Leases granted before commencement of the new legislation will not be affected by the ban, but the legislation will apply to all business tenancies granted afterwards, including 1954 Act renewal leases. The test does not depend on the tenant’s actual use of the property at the time, so the regime can apply even where the premises are not in occupation by the tenant or are sublet.
Where a superior lease prescribes an upward-only review in any permitted sublease, that requirement will be disapplied for post‑commencement underlettings. In practice, this removes the superior landlord’s ability to control review terms, including in situations where the headlease itself predates commencement.
Are existing negotiations already in scope?
The position is more complex where parties enter into arrangements now for leases to be granted in the future. In particular, the legislation draws a distinction between, on one hand, arrangements entered into with a new tenant to the property, and on the other, arrangements for the renewal of a lease to an existing tenant, where a targeted look-back provision in the legislation affects arrangements entered into after a certain date:
- Leases with a new tenant to the property entered into after commencement, but which are granted pursuant to agreements for lease/options entered into before commencement, will not be caught by the ban.
- Arrangements for the renewal of an existing lease (i.e. arrangements for the grant of a new lease to an existing tenant of the property, including a put or call option, or an agreement for lease) are treated differently. Where such an arrangement was entered into before 17 March 2026, the resulting lease, if granted after commencement, is not caught by the ban. However, the ban will apply to any new lease granted after commencement pursuant to any such tenancy renewal arrangement which was entered into on or after 17 March 2026.
Because the renewal carve‑out is tied to a historic date, it has immediate implications for transactions currently at heads of terms or drafting stage, even though commencement is later. Landlords currently negotiating deals involving an option for a current tenant to take a new lease of the premises in the future need to be aware that the lease granted pursuant to the option will be caught by the ban if (as is likely) the lease is entered into after commencement of the Act. Deciding on the best approach in this scenario is challenging; it is entirely possible that under a different government and legislative agenda, these changes might never actually come into force.
Commercial considerations
The Government’s intention behind these changes is to protect tenants against paying inflated rents during market downturns, and tenants will no doubt broadly welcome them. However, it seems likely that these proposals will change the way the terms of leases are negotiated.
From a landlord’s perspective, the proposed changes raise a number of commercial considerations. The ban on UORRs introduces the possibility of downward rent movements, which may affect income certainty, valuation assumptions and lending structures. It also limits the effectiveness of traditional rent review mechanisms as a tool for managing long-term value.
It remains to be seen how this might affect the property sector; however, the market is already beginning to respond to these anticipated changes. In particular, landlords are revisiting the use of renewal options, with some opting to omit them in order to retain greater flexibility at lease expiry. There is also increased interest in alternative rental structures, such as stepped rents or fully fixed increases, which fall outside the scope of the proposed restrictions.
Landlords involved in ongoing or forthcoming transactions should take the opportunity to review their leasing approach. Careful consideration should be given to the inclusion and structure of renewal and option rights, particularly where dealing with existing tenants, as well as to the selection of rent review mechanisms and lease terms. It will also be important to assess how portfolios might perform in a scenario where downward rent reviews become a realistic possibility.
Further guidance from the Government is awaited, as is a government-signalled consultation on whether downward movement should be limited (for example, by permitting an agreed minimum level on review, potentially coupled with an equivalent ceiling on increases). However, the retrospective effect of the March 2026 threshold means that this is already a live issue. Giving some thought to defensive strategies and careful structuring of transactions now may be key to preserving flexibility and managing risk as the position develops.