Understanding the ban on upwards-only reviews

The English Devolution and Community Empowerment Act 2026 received Royal Assent earlier this month, marking a significant shift in commercial property law. Among other reforms, the Act will introduce a ban on upwards-only rent reviews in leases of business premises.

The relevant provisions will not take effect immediately. The commencement date is expected to be no earlier than 2027, possibly later, following further consultation and the publication of secondary legislation.

What is an upwards-only rent review?

An upwards-only rent review clause is a standard provision in most commercial leases. Where included, such a clause provides that, on review, the rent will either increase by reference to a variable reference point (such as open-market rent or an appropriate index) or remain the same as the rent payable immediately before the review (the passing rent), even where the open-market rent or indexed rent used as the reference point has fallen below that level.

While these clauses have become commonplace and provide security for landlords and lenders, they can cause hardship for tenants during market downturns. In particular, tenants may be left paying rent above market levels, with limited prospects of assigning the lease.

Will the ban apply to all leases?

No, the ban will only apply to new leases and lease renewals of premises capable of occupation for business purposes granted after the commencement date.

This will include leases contracted out of the Landlord and Tenant Act 1954, and headleases, including those where the tenant is not in occupation of the premises.

Will the ban have retrospective effect?

No, the ban will not unwind or invalidate lease clauses that provide for an upwards-only rent review where the lease was granted before the commencement date, or was granted pursuant to an agreement for lease entered into before the commencement date. Rent reviews in such leases will continue to operate on an upwards-only basis.

There is, however, a limited retrospective element, introduced following a House of Lords amendment that will apply the ban where the parties to a lease have, on or after 17 March 2026, entered into an agreement or other arrangement to renew that lease and the renewal lease is granted after the commencement date. This is an anti-avoidance provision intended to prevent parties contracting in advance to avoid the application of the ban.

Will the ban prevent all rent increase provisions?

No. The ban applies only to rent review provisions that include provision for the rent to be increased to the higher of the passing rent and a “reference point” such as the open-market rent, an appropriate index or a percentage of turnover, with the effect that the reviewed rent cannot fall below the passing rent.

The following will therefore continue to be permitted in new and renewal leases after the commencement date:

• Fixed increases where rent is increased to a pre-agreed sum or by an agreed percentage.
• Reviews using a reference point such as open-market rent, an appropriate index or a percentage of turnover, provided there is no upwards-only element and the reviewed rent may therefore fall below the passing rent.

There has been uncertainty as to how the use of two (or more) reference points will be viewed, for example where the reviewed rent is expressed to be the higher of (i) the open-market rent or a percentage of turnover and (ii) the indexed linked rent. Recent clarification, pending formal guidance, confirms that such mechanisms will remain lawful, provided that there is no upwards-only element and the rent may still fall below the passing rent.

What are the consequences of non-compliance?

Where a lease entered into after the commencement date includes an upwards-only rent review clause, the rent review will operate without reference to the prohibited provision.

The Act includes robust anti-avoidance measures. It will not be possible to contract out of the ban, and tenants will have the ability (where not already provided for in the lease) to trigger rent reviews. This is intended to prevent landlords from avoiding rent reductions by simply declining to initiate a review.

When will the ban come fully into effect?

The Act is not expected to come into force before 2027, or possibly later.

Further consultation will take place before commencement to cover the possible use and operation of agreed “caps” and “collars”, allowing the parties to a lease to agree limits on the extent to which rent may increase or decrease on review.

What impact will the ban have on the market?

Although rent review clauses have remained largely unchanged in recent years, there has already been a trend towards shorter lease terms. Many commercial leases are now granted for terms of five years or less, often without a rent review. The use of break clauses and index-linked rent reviews (either alongside or instead of open-market reviews) has also become more common. As a result, it is now relatively uncommon for tenants to remain locked into rents significantly above market levels for extended periods.

We do not expect a widespread move towards stepped rents, except possibly for very short lease terms. Instead, it is anticipated that landlords will increasingly adopt “dual” rent review mechanisms, with rent calculated by reference to the higher of open-market rent and an index-linked rent. While it remains possible, in the absence of an upwards-only restriction, for open-market rent to fall below the passing rent, market trends suggest that an index-linked rent is unlikely to do so.