An upward-only rent review is a clause in many commercial leases that means the rent can increase at review, but it cannot decrease. Reviews are normally carried out every few years and can be linked to the market value of the property, an inflation measure, or a fixed increase. While this gives landlords certainty over their income, it can result in tenants paying more than the going market rate if conditions change.
In this newsletter, we discuss what upward-only rent reviews are, the potential abolition of these clauses, how rent reviews could work in future, and the implications for both landlords and tenants.
Is the abolition already in force?
At present, upward-only rent reviews remain lawful in England and Wales. However, there has been growing political and industry debate about whether they should be reformed or removed altogether. If a ban is introduced, it is expected to apply only to new leases rather than existing agreements. This means existing leases would carry on under their current terms unless both sides agree to make changes.
How might rent reviews work instead?
If upward-only reviews are abolished, rent clauses will need to allow movement in both directions. This would align rental obligations more closely with market realities and help protect tenants during economic downturns.
Common alternatives could include:
- Open market rent reviews that allow for rises or falls.
- Index-linked reviews tied to CPI or RPI, with flexibility in both directions.
- Turnover rents, particularly in the retail and hospitality sectors.
- Fixed step reviews that can increase or decrease over time.
What would the change mean for landlords?
For landlords, the removal of upward-only reviews would introduce greater income variability. Property valuations, lending arrangements, and investment strategies might all need to be reconsidered. Proactive measures could include:
- Reviewing existing lease precedents and portfolios.
- Modelling cash flow scenarios with rents moving in either direction.
- Initiating discussions with lenders to explore financing arrangements based on guaranteed rent uplifts.
Taking these steps early can help landlords adapt smoothly to any legislative change.
What might the change mean for tenants?
Tenants could benefit from fairer rent outcomes, particularly in weaker markets. This could improve cash flow and reduce the risk of overpaying. Businesses may also gain more bargaining power when negotiating renewals, with scope to include:
- Shorter lease terms and more frequent reviews.
- Clauses that reflect trading performance.
- Break options that provide flexibility if conditions change.
By planning ahead, tenants can position themselves to secure terms that better reflect their business needs.
Will existing leases be affected?
Any reform is likely to be non-retrospective. Current leases should remain valid, and upward-only clauses will continue to apply unless the parties choose to amend them. However, the change could affect leases that are renewed or re-geared after the law takes effect, so forward planning is essential.
How 3CS can help
At 3CS, we monitor changes in commercial leasing law and advise on their impact. We review leases, draft compliant rent review clauses, and support clients with renewals and portfolio management. Whether you are a landlord looking to protect your investment or a tenant seeking flexibility, we offer clear and practical advice. Contact us today to discuss your requirements.
