The End Of Upwards-Only Rent Reviews? Current Thoughts On The Proposed Legislation

The Government’s rationale for the bill is to protect small, retail high street tenants, but the proposed ban applies to all types of commercial leases. If enacted, the ban will affect all new commercial leases that fall within Part II of the Landlord and Tenant Act 1954 (the “1954 Act”).

It will therefore apply to all leases of premises that are occupied by the tenant for business purposes.

The proposals will apply to renewal leases (including renewals of secure leases under Part II of the 1954 Act), meaning that where a lease is renewed, the renewal will be treated as a new lease and UORRs will no longer be permitted.

However, the ban will not have a retrospective effect, so existing leases containing upward-only provisions will continue to operate until the end of their contractual term.

The Bill is currently at committee stage, with a long way to go before (if) it becomes law. Any impact of a ban on UORRs therefore, involves an element of crystal ball gazing, but there are a number of possible consequences that seem reasonably likely:

• Higher initial lease rents in an attempt to mitigate the uncertainty of lower rents at review.
• Shorter lease terms, to reduce exposure to the vagaries of an upward/downward review (although high street retail leases, the very occupiers that the Government wants to assist, are already commonly between 3 and 5 years).
• An increased adoption of fixed rent increases, especially in shorter leases.
• More extensive negotiating of lease renewals, although this would mainly be relevant for the first renewal after the ban comes into force.
• Investors reviewing their exposure to the property market.
• Lenders adjusting their criteria, possibly requiring additional security and/or improved (for the lender) loan to value ratios.