The Ups And Now Downs Of Rent Reviews

Introduction

The English Devolution and Community Empowerment Act 2026 (2026 Act), which received royal assent on 29 April 2026, introduces significant changes to the regulation of rent reviews in commercial leases. Here we discuss the changes proposed and how they may affect the market.

What is the current market practice?

In the UK market, commercial leases have typically included rent review mechanisms which ensure that rents can only increase, regardless of whether the review is by reference to market value, pricing indices such as the CPI, or turnover in the case of retail premises.

This upward-only approach meant that the value of a landlord's asset was somewhat protected, even when market conditions change.

What is the change?

The new provisions fundamentally alter this system by removing any upward-only restriction. As a result, rents will have the capacity to decrease as well as increase, depending on the outcome of the review process.

Why has the government proposed this?

The government has argued that upward-only rent provisions:

• Create inefficiencies in the market, and
• Are a barrier to reviving vacant high streets and town centres.

The inclusion of the ban, without prior consultation, within a piece of legislation primarily focused on local government surprised many in the property industry. Concerns were raised over the potential impact on property valuations, the stability of long term investments (especially those underpinning pension funds), and the viability of funding new development and infrastructure. Nonetheless, the provisions were passed by both houses of parliament with minimal amendments, underscoring broad legislative support.

When will this happen?

The 2026 Act amends the Landlord and Tenant Act 1954 (1954 Act) by inserting two new schedules to govern the effect of rent reviews.

Although the relevant provision within the 2026 Act is set to be enacted by regulation at a later date, implementation is not expected before 2027.

The government has also indicated that it will postpone the implementation until it has engaged in consultation with stakeholders. The consultation will cover the specifics of the ban as well as the potential use of caps and collars in rent review clauses.

Caps and collars are mechanisms that can ensure landlords benefit from some protection during market downturns while protecting tenants from sharp rises during market booms. Industry experts anticipate that allowing caps and collars alongside the new provisions will help mitigate any unforeseen consequences arising from the legislation and provide landlords with some downside protection from unforeseen decreases in circumstances where the tenant is shielded from unforeseen rises.

What are the details of the ban?

The legislation applies to any new commercial lease entered into after the provisions take effect. This will include renewals under the 1954 Act. There is a slight retrospective element to the legislation in that it will apply to any lease granted pursuant to an option or agreement to renew entered into on or after 17 March 2026. Whilst the given rationale for the ban is focussed on retail, it will apply to any commercial premises.

Traditionally, some rent reviews could only be triggered by the landlord. In this way the landlord could hold off effecting the rent review until market conditions were more favourable to an increase. Under the new provisions, tenants will have the power to initiate rent reviews, further balancing the rights and responsibilities between landlords and tenants.

Summary

Hopefully the consultation will give us further insight into the governments thinking for when implementation may be planned. In the meantime investors are carefully considering how to structure leases in the future to mitigate the impacts of the ban.