Proposed ban on upwards only rent reviews: What we know so far

It’s been a couple of months since the government’s surprise proposal to ban upwards-only rent review clauses (UORRs) in new and renewed commercial leases. Announced as part of the English Devolution and Community Empowerment Bill, the proposed ban could mark a significant shift in the landlord-tenant dynamic.

What is being proposed?

The main focus of the draft bill is to promote regional growth and enhance local governance by standardising English devolution structures, creating a new tier of ‘strategic authorities’ across England, reforming the organisation of local government, and changing community rights.

What are upward-only rent reviews?

These are lease terms that allow rent to increase at review but never decrease, even if market rates fall. The proposals regarding upward only rent reviews can be found in Clause 71 of the draft Bill which would incorporate the ban into a new Schedule 7A of the Landlord and Tenant Act 1954 (LTA 1954).

 The proposals as they stand would:

• Prohibit UORRs in new and renewal leases for commercial premises in England and Wales.
• Permit rent reviews that are:
  • Market-based, but capped at the prevailing market rent, even if that is lower than the current rent.
  • Index-linked, provided the rent can decrease as well as increase.
• Apply only to leases where the tenant is in business occupation.
• Introduce anti-avoidance measures, to increase tenant protections meaning tenants may be able to trigger rent reviews without landlord cooperation, preventing landlords from blocking rent reductions.

If introduced, the provisions will apply to most new business tenancies (including pubs, bars, restaurants, hotels, leisure venues) granted after the Bill comes into force meaning new rent reviews must allow rent to move both up and down, reflecting actual market conditions. 

The draft Bill also proposes to ban upwards only rent reviews in put options, which are contractual arrangements where tenants can be required to take a new lease at the end of the lease term. These proposals can be found in the draft new Schedule 7B: Prohibition of upward-only terms in put options.

Which leases would this apply to?

The provisions would generally apply to new leases and renewal leases granted within the protection of the LTA 1954, not existing leases of commercial property where certain conditions are met:

• The tenancy is a business tenancy to which Part 2 of the LTA 1954 applies i.e.the tenant meets the occupation requirements set out in section 23 of the LTA 1954. Although part 2 of the LTA 1954 does not apply to licensed premises in respect of tenancies entered into prior to August 1989, these would still be subject to the proposed ban on upward-only rent review terms.
  • That the tenancy was granted after Schedule 7A comes into force and is not granted under a contract entered into before this Schedule 7A comes into force.
  • That the tenancy is subject to relevant rent review terms i.e. provisions which say the amount of rent payable under the tenancy may change during the term and this amount cannot be ascertained when the lease is granted. Stepped rents, where the lease terms confirm how much the rent will increase by each year will still be permitted.
  • That the has two elements (1) that the calculation of the new rent is set by reference to a variable measure, for example inflation, the tenant’s turnover or open market rent and (2) that the rent review provisions could produce a different rent from the original starting rent.

Will there be any exceptions: 

• The government would have the power to create exceptions by regulation, but these are expected to be limited.
• Some exemptions would also be provided for in section 43 and section 43ZA of the LTA 1954, namely:
  • Agricultural tenancies
  • Farm business tenancies
  • Mining tenancies
  • Tenancies granted by reason that the tenant was the holder of an office which is only valid when the tenant holds said office
  • Short term tenancies under six months (this may be increased to two years following recommendations of the Law Commission)
  • Some electronic communications tenancies 

Why now?

The Government’s rationale is rooted in its broader “Plan for Change,” aimed at revitalising high streets and supporting small businesses. Ministers argue that UORRs “pit landlords against businesses,” contributing to unaffordable rents, vacant premises, and declining town centres.

However, the initial announcement came without any widespread consultation, prompting concern across the property industry that the move could potentially undermine investor confidence. 

What could this mean for key stakeholders?

For landlords and investors:

• Valuation impact: Reduced certainty / predictability of rental income may affect asset valuations and lending terms. Landlords may need to may need to adjust investment models and valuations when refinancing etc.
• Lease structuring: Greater emphasis may be placed on stepped rents or shorter leases
• Risk of mismatch: Longer headleases may still contain UORRs, while newer subleases might not, creating potential income gaps.
• Increased litigation: Disputes may arise over the interpretation of the provisions, including any transitional and legacy clauses.
• Delay: A pause while investors and Landlords get their heads around the proposed changes.

For tenants:

• Stronger negotiating position: Especially during lease renewals.
• Protection from market downturns: Rent would be able to fall in line with market or index movements.
• Greater flexibility and protection against unsustainable rent increases, especially valuable for hospitality businesses with variable income.
• Simplified terms: Greater transparency and fairness in lease agreements.
• Higher rents?: Perhaps stepped rents, or higher initial rents will appear more to reduce risks to landlords and this may put further pressure on tenants.

Industry reaction:

The response has been swift and polarised:

• Landlords and institutional investors have expressed concern about the lack of consultation and the potential cooling effect on development and inward investment.
• Small business groups have welcomed the move as a step toward fairer lease terms.
• Market impact share prices of some major REITs dipped following the announcement.

Are there any other provisions in the Bill that might impact the drinks, hospitality and leisure sector?

Community Right to Buy

• Expansion of ‘community right to bid’ to a ‘community right to buy’ for assets of community value (which could include pubs, leisure venues, and other hospitality assets).
• Community groups/parish councils will have a right of first refusal when such assets are sold.
• Process: If an asset is listed and the owner wishes to sell, the community group can buy at a price set by negotiation or independent valuation.
• Sporting Assets: there could be special provisions for sporting venues (stadiums, sports clubs etc.) to be listed and protected.
• Impact: Owners of hospitality venues may face increased restrictions on selling to third parties if more assets are listed as of community value.

Implications

• Landlords/Owners: May face delays or restrictions when selling listed assets; which could affect exit strategies and asset liquidity.
• Tenants/Community Groups: Msy have increased opportunity to secure long-term control of valued venues (pubs, clubs, leisure centres etc.).
• Investors: Potential risk if investing in assets likely to be listed as community value. Investors would need to assess local sentiment and listing status.

Local Authority and Strategic Authority Powers

Mayoral and strategic authorities will have enhanced powers over:

• Planning and development: Mayors can call in and determine planning applications of strategic importance, create Mayoral Development Corporations, and set Community Infrastructure Levy (CIL) rates.
• Economic development and regeneration: Local Growth Plans and grant powers may affect investment in hospitality and leisure.
• Transport and infrastructure: Strategic authorities will control local transport plans, which may impact accessibility for hospitality venues.
• Neighbourhood governance: New requirements for local authorities to establish neighbourhood area committees may affect local engagement and decision-making for hospitality businesses.

Implications:

• Landlords/Investors: Greater local/regional variation in planning, infrastructure, and regeneration priorities; need to engage with new authorities.
• Tenants: Potential for more responsive local policies, but also risk of inconsistency across regions.

Visitor Levy / Tourist Tax

• No new powers for local authorities to introduce a tourist tax (visitor levy) included in the Bill, despite some political debate / push for inclusion.
  • Hospitality sector concern: The Bill does not currently allow metro mayors or councils to levy tourist taxes on overnight stays, which could have affected hotels and leisure venues.

Other relevant provisions

• Audit and Governance: New requirements for local authority audit committees and reforms to local audit may increase transparency and accountability, indirectly affecting property owners and operators.
• Unitary Local Government: Restructuring may change local authority boundaries and governance, affecting licensing, planning, and business rates for hospitality venues.

What happens next?

The Bill is at an early stage and will undergo significant scrutiny in Parliament, where amendments are likely. Industry bodies are expected to lobby for changes, particularly around scope, transitional arrangements, and the treatment of headleases. There is also speculation that the Government hopefully will reconsider or refine the proposals in response to feedback. It remains to be seen whether Angela Raynor’s recent resignation and the government reshuffle appointing Steve Reed as the New Secretary of State for Housing, Communities & Local Government will have any impact on this Bill.

Final thoughts

Initiatives designed to support small businesses and revitalise high streets are clearly needed, but the proposed ban on UORRs represents a significant intervention in the commercial leasing market. For landlords, tenants, and investors alike, the coming months will be critical in shaping the final form of the legislation.

• Drinks, hospitality, and leisure businesses holding leasehold sites could benefit from the ban on upward-only rent reviews, gaining more negotiating power and protection against unsustainable rent increases.
• Landlords and investors would need to be more flexible, include market-driven rent review mechanisms and consider the risk of assets being listed as community value.
• Community right to buy may affect asset liquidity and sale processes for pubs, clubs, and leisure venues.
• Local devolution means more powers for mayors and strategic authorities, potentially leading to more locally tailored policies but also more variation across England.
• No tourist tax powers in the Bill, so no immediate new cost burden for hospitality businesses from local levies.