With the English Devolution and Community Empowerment Act 2026 (the “Act”) having received Royal Assent on 29 April 2026, the long-anticipated abolition of so-called 'upwards-only' rental clauses is now confirmed.
When the relevant parts of the Act relating to upwards-only reviews come into force, which is expected in 2027, the change will represent one of the most significant reforms to commercial leasing in decades.
What is an upwards-only rent review?
Rent reviews can take different forms:
- by reference to the rent payable on a hypothetical letting on open market terms
- by reference to an agreed index (RPI or CPI)
- stepped rents which change to a fixed amount on each relevant date
An upwards-only rent review clause is a common provision in commercial leases. It provides that, on review, the rent may either increase in line with the review mechanism, or remain unchanged where the review would otherwise produce a lower rent. The important point is that the reviewed rent cannot fall below the rent payable at the review date (the passing rent), even if market rents have declined.
Once the Act comes into force, rent reviews must no longer operate on an upwards-only basis. However open market and index-linked reviews remain permitted provided they allow for both upward and downward movement and do not operate in practice as a floor, whether directly or indirectly. Stepped rents are also allowed, as they are fixed at the outset.
The legislation also includes wide-ranging anti-avoidance provisions designed to prevent parties from replicating upwards-only outcomes through alternative drafting. These are expected to operate on a substance over form basis meaning that any mechanism which has the effect of preventing rent from falling may be rendered ineffective. In practice this may capture a range of commonly used structures including:
- index-linked reviews with a floor or cap
- turnover rents with guaranteed minimum payments
- side letters or collateral agreements preserving the passing rent
- rent review assumptions and disregards which artificially maintain rental levels
- restrictions on a tenant's ability to trigger a rent review
Tenants will have the ability to initiate rent reviews, even if the lease does not expressly provide for this. This represents a material shift from current market practice and may expose landlords to earlier or more frequent downward rent adjustments in a falling market.
Transitional position
The application of the ban depends heavily on timing. Leases granted before the Act comes into force are not affected. The Act uses 17 March 2026 as a transitional trigger date to delineate the boundary between the old and new regime.
Renewals and agreements for lease involving existing tenants entered into on or after 17 March 2026 may fall within the regime, particularly if the resulting lease is completed after commencement. By contrast, agreements for lease with new tenants entered into before commencement are generally outside scope, even if the lease is completed after the ban takes effect.
Parties should therefore take care when structuring renewals, agreements for lease and variations during the transitional period, as timing may determine whether the new regime applies.
Underleases
The Act takes a strict approach to subletting. All underleases granted after the Act comes into force will be caught, regardless of when the superior lease was granted. As a result, existing leases may contain upwards-only provisions, while subsequent underleases must allow for downward movement, creating potential drafting and enforcement tension, as well as a possible mismatch between headlease and underlease rental income.
Practical implications
With upwards only rent reviews having been the status quo for commercial leases for decades, the reforms represent a material shift in risk allocation between landlords and tenants. Landlords will lose the certainty of upward-only income growth, while tenants gain protection against over-renting in falling markets.
The changes are also likely to have wider implications for investment and financing. Income streams may become more volatile, which in turn could affect valuation assumptions, lender requirements and the structuring of investment deals.
As noted in our previous article, “The end is nigh for upwards-only rent reviews”, the direction of travel was already clear. The Act now confirms that position, albeit with important detail still to emerge through secondary legislation and market practice.
While the detail will continue to develop, the direction of travel is now clear: upwards-only rent reviews are moving from market norm to historical feature, requiring landlords, tenants and investors alike to rethink how commercial leases are structured and priced. There has already been a push towards shorter leases to accommodate tenant requirements for flexibility and it may well also now be something that some landlords will also seek if it enables them to reset rents on renewal rather than relying on rent review mechanisms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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