In our previous article focussing on the ban on upward-only rent reviews, we looked at the scope of the new regime, the commercial leases likely to be affected and the immediate steps landlords should be considering.
However, some of the more significant consequences of the ban may arise before a new lease is actually granted. Renewal options and other arrangements agreed from 17 March 2026 can have implications for future leases, while landlords will also need to consider how alternative rent review mechanisms can be structured without falling foul of the new rules.
There are wider commercial questions too. A move away from upwards-only reviews could influence rental forecasts, property valuations, lending assumptions and investment decisions across commercial property portfolios.
In this follow-up, we take a closer look at those issues and consider what landlords, investors and their advisers should be thinking about as they negotiate leases and plan for the new regime.
Landlords considering how the upward only rent review ban affects commercial lease terms should review the wider lease structure alongside rent, break rights, incentives and renewal provisions.
How will the ban affect lease renewals and renewal options agreed on or after 17 March 2026?
Any agreement for lease, put/call option or contractual renewal arrangement entered into on or after 17 March 2026 may be caught by the ban, even if the new lease itself is granted before the relevant provisions of the Act come into force.
The significance of 17 March 2026 is that the Act includes a retrospective element for renewal arrangements created on or after that date. In broad terms, if a landlord grants a tenant a right to require a future renewal lease, or agrees a renewal arrangement on or after 17 March 2026, the resulting renewal lease may not be able to include an upwards-only rent review once the ban is in force.
Landlords should therefore be cautious about granting renewal rights, options to renew or conditional renewal arrangements without considering the future rent review position.
Before agreeing those rights, they should think carefully about whether the renewal lease could be forced onto a non-upwards-only review basis, how that might affect valuation and lending assumptions, and whether the initial rent, term length, incentives, break rights or alternative rent review mechanism should be adjusted to reflect the additional risk.
Where renewal rights are commercially necessary, the drafting should be reviewed carefully so that the landlord understands what future lease terms may be locked in and whether there is sufficient flexibility to respond to the new regime.
Where renewal terms become contested, landlords and tenants may also require advice on commercial lease renewals and landlord and tenant disputes, particularly where statutory renewal rights apply.
What rent review mechanisms can landlords use once the ban takes effect?
Index-linked (CPI/CPIH/RPI) rent reviews
If the index moves up, the reviewed rent would be higher than the existing rent figure at review. Where the index moves down, and so the reviewed rent would be below the existing rent. The Tenant would start to pay a lower rent than what they were paying before. The change in drafting will need to be carefully considered so that the index linked review is not stipulated to be upwards only.
Fixed or stepped rent increases
The parties would agree set rent increases at set intervals throughout the lease term. From a lawyers perspective, this simplifies the drafting of rent review provisions but might be a nightmare for surveyors/agents at the heads of terms stage.
Turnover rents or hybrid models
Turnover rent is a rent payment structure where rent is paid based on a percentage of the tenant’s gross sales. A hybrid model combines a lower base figure as a guaranteed rent with a ‘top-up’ percentage of turnover payable. The drafting of turnover rents requires careful consideration on several points because they turn a legal contract into a highly customized, dynamic business model
What happens if a lease includes an upward only rent review clause after the ban applies?
Once the ban applies, an upwards-only rent review provision in a caught lease is likely to be of no effect to the extent that it prevents the reviewed rent from going down.
The expected legal effect is not that the entire lease fails, or necessarily that there is no rent review at all. Instead, the upwards-only element is likely to be overridden or treated as ineffective so that the rent review mechanism can operate both upwards and downwards in line with the new statutory rules.
For landlords, this means that including old-style wording after the ban comes into force may create uncertainty rather than protection. The landlord may not be able to rely on the clause to preserve the passing rent, and the reviewed rent could fall if the relevant open market, index-linked or turnover-based formula produces a lower figure.
Non-compliant drafting may also lead to disputes about how the review should operate, delay rent review settlements, increase legal and valuation costs and cause issues for valuation or lending assumptions. Landlords should therefore update precedent leases and heads of terms before the ban takes effect, rather than relying on the courts or an expert to correct defective drafting later.
How could the ban affect commercial property valuations, lending and investment strategy?
Please explain how the ban could affect income certainty, property values, funding arrangements and long-term investment decisions.
A ban on upwards-only rent reviews could make rental income less predictable for landlords. At present, landlords can generally be confident that rents will either stay the same or increase when they are reviewed. Under the new regime, rents could potentially fall as well as rise, creating greater uncertainty over future income.
This uncertainty could affect commercial property values, as investors may be prepared to pay less for assets where future rental income is less certain. Banks and other lenders may also take a more cautious approach, for example by lending a lower percentage of a property's value, applying stricter lending criteria or looking more closely at lease terms.
Existing borrowing arrangements could also be affected if falling rents or property values impact financial commitments agreed with lenders.
For investors, the changes may increase the appeal of high-quality properties with strong tenants and reliable demand, while making secondary properties less attractive where rental levels are more vulnerable to market conditions. Landlords and investors are also likely to focus more on active management of their properties and on managing the risk of rental declines.
Although the market is likely to adapt over time, the proposed ban would represent a significant shift in risk from tenants to landlords, with potential consequences for rental income, property values, lending and investment strategies.
Planning ahead for the changes
The forthcoming changes to rent reviews are likely to influence much more than the drafting of a single clause. For landlords, the challenge will be understanding how decisions made now, particularly around renewal rights, future lease arrangements and alternative rent structures, could affect income and flexibility later.
There is unlikely to be one replacement rent review model that works for every property or transaction. Fixed increases, index-linked reviews, turnover arrangements and other structures each carry different commercial considerations, and landlords will need to assess those alongside lease length, tenant covenant strength, valuation and funding requirements.
This makes early consideration increasingly important. Landlords negotiating renewal arrangements or new lease terms should ensure that the proposed rent structure works not only from a legal perspective, but also supports the wider commercial objectives for the asset or portfolio.
Our Commercial Property team can advise landlords, investors and developers on lease renewals, rent review provisions and the wider implications of the new regime, helping to ensure future arrangements are structured with both the legal changes and commercial realities in mind.
Need to Talk to Someone?
Use the form to send us some details about your matter and one of our experts will get in touch, or you can call us using the number below.
