UK Real Estate: The ban on upwards-only rent reviews: key questions answered

Why is the government making this change?

The government says that it put forward the measures in order to deal with the perceived negative impact upwards-only rent reviews have on the retail sector and to “help end the blight of vacant high streets and the unacceptable anti-social behaviour that comes with them”.

When the Bill was introduced, the government criticised the adversarial nature of rent reviews, which in their view “pit landlords against businesses”.

Where can I find the new provisions?

The 2026 Act introduces and contains the details of a new section 54A and Schedule 7 of the Landlord and Tenant Act 1954.

The ban applies to business tenancies whether they benefit from security of tenure or have been contracted out of that regime and is, in fact, not limited to retail leases but applies to all business tenancies, from retail and office to warehouse and data centre leases.

What is the effect of the prohibition?

The prohibition is drawn in wide terms and provides that a rent review provision that would result in a new passing rent being more than the “reference amount” will be of no effect. Instead, in such circumstances, the new passing rent will be the same as that reference amount.

The reference amount means an amount of rent determined by reference to:

1. the effect of inflation or any other index or multiplier;
2. the actual rent or a hypothetical market rent; or
3. the tenant's turnover.

In effect, any mechanism whereby the rent on review is expressed to be the higher of the passing rent or the reference amount will no longer be effective and if the reference amount is lower than the passing rent then the rent will go down.

What about existing leases or agreements for lease?

Leases that are already in place, including reversionary leases or leases granted pursuant to agreements for lease that are exchanged before the 2026 Act comes into effect, will not be caught by the prohibition on upwards-only rent reviews.

This will lead to a distinction in the market between leases that contain lawful provisions for the upwards-only review of rent and those leases that do not. It is not yet clear how that distinction will impact the investment market in practical terms.

I gather there is a retrospective element – how will that operate?

While the prohibition will generally not affect contractual arrangements that are already in place, there is a provision in the 2026 Act that has some retrospective effect.

In relation to “tenancy renewal arrangements” the ban on upwards-only rent reviews will affect any such arrangements entered into on or after 17 March 2026, as opposed to the date on which the Act comes into force. A tenancy renewal arrangement is essentially an option for the grant of a future lease.

In practice, this means that the prohibition on upwards-only rent reviews would apply to the rent payable under a new lease (both on a day one rent review, and subsequent reviews during the term) where that lease is granted to an existing tenant of the same premises pursuant to either a put or call option contained in a lease, or other contract, completed on or after 17 March 2026.

Even though the Act is not yet in force, this provision is relevant now. Any landlord currently negotiating leases that include an option for the tenant to take a new lease at the end of the term will require a decision on how the rent should be determined under the option lease, as a day-one, upwards-only rent review provision in the option lease will be invalid.

How does the prohibition impact subleases?

Often a headlease that permits subletting requires any subleases to be granted with rent review provisions that align with those in the headlease, and specifically that rent reviews will be upwards only. Once the legislation comes into effect, any such requirement for an upwards-only rent review to be included in a sublease will be unenforceable. Instead, rent payable under a sublease must be capable of upward and downward review.

This potential mismatch between the rent payable under a headlease and a sublease may cause concerns for an intermediate tenant whose pre-ban lease lawfully contains an upwards-only rent review, but who is then faced with a shortfall on the income received from the post-ban sublease that sits below the headlease.

I have heard a tenant can force a rent review – how will that work?

It is quite common for leases to contain rent review provisions that are only triggered on notice, as opposed to taking effect automatically on the relevant rent review date, and often only by notice from the landlord rather than the tenant. Historically, in a falling market landlords would then not trigger the review because the passing rent is higher than the market rent, and therefore there is no point in them spending the time or money conducting a formal review process.

The new regime shifts power to tenants by introducing a right for a tenant to trigger a rent review process by serving notice on its landlord. Therefore, in a falling market, the tenant has the ability to force a review and benefit from a reduced rent with effect from the rent review date.

What are the alternatives to an upwards-only rent review?

The legislation does not prevent the review of rent generally, provided the reviewed rent is not fixed above the reference amount by the contractual mechanism.

For instance, landlords and tenants may agree that the rent will be reviewed in line with changes to a specified index, such as the Retail Prices Index or Consumer Prices Index. Provided the mechanism allows for the passing rent to fall if the relevant index has fallen, this mechanism may be a workable way for the parties to ensure the passing rent broadly keeps track with the prevailing economic conditions. Reviews could take place annually or on the traditional five-yearly basis (whether with annual compounding calculations or not).

Alternatively, the parties may prefer to expressly set out in the lease stepped predetermined increases to the rent that will take place at defined intervals, whether by way of defined sums or specified percentage increases. Even if the steps are upwards only, this mechanism is permitted by the legislation – both parties know what bargain is being made at the outset of the lease. While this mechanism has the advantage of clarity for both parties from the start of their contractual relationship, it means both the landlord and the tenant will need to carefully consider the level of an acceptable increase some years in advance of it actually taking effect, and this could be difficult to judge.

We may also see landlords and tenants agreeing to shorter lease terms with no rent review, if they consider it better to negotiate in the open market rent at expiry.

What happens now?

The 2026 Act is not yet in force. Future regulations will set the date on which the prohibition on upwards-only rent reviews will take effect.

The government has signalled that it will consult on the potential use of caps and collars in rent reviews, and at the time of writing the timing for that consultation process is awaited. The inclusion of caps and collars in rent review clauses may give predictability to investors when looking at the income likely to be generated by an asset.

The changes to the long-held tradition of upwards-only rent reviews will be widely felt. How the industry reacts to the new regime will be closely observed, and property owners will need to work through the various alternative models to establish their preferences.

An earlier version of this article appeared in Estates Gazette.

Authored by Paul Tonkin, Tim Reid, Christopher Somorjay, Stella Bliss, Ingrid Stables, and Lucy Redman.