On Thursday 10 July 2025, the Government published the English Devolution and Community Empowerment Bill – unexpectedly proposing a ban on upwards only rent reviews (UORR). If implemented as currently proposed, it will have a clear impact on the commercial real estate sector – in particular the Industrial & Logistics and Retail sectors. In this article we explore the current proposals with the Head of our Industrial & Logistics sector group, Dwynwen Lewis, who shares some insight and analysis on the Government's proposals.
Status
The Bill is only at its first reading in Parliament and it will be many months before the legislation can be passed (estimated c.2 years before the measures would be ready to commence). Much of the Bill in fact relates to local government structures and powers, so largely unrelated to commercial UORR issues, with the rent review proposals tucked away 338 pages into the Bill.
Trowers' view
Over the coming weeks, via our seat on the BPF's Industrial Committee, we will be sharing our views more widely and the topics we will be looking to cover are listed below.
Timing and measures
- The Bill provides for a complete ban on UORRs – including the prevention of any loopholes
- The Bill does enable indexing, provided that rents can fall if the index falls
- The Bill is not retrospective and will not affect existing leases entered into before the new legislation comes into effect
- The Bill will apply to existing leases on any renewal (54 Act or otherwise) once the measures commence
- The proposed consultation will be around specific measures e.g. collars and caps rather than the proposals themselves
- The Government notes that it had considered not banning UORRs and instead trying to support behavioural change, but those proposals were ultimately rejected as it was felt previous efforts had no impact. Some may recall the efforts of the Blair Government 25+ years ago where a similar ban was mooted but at the time optional provisions in the RICS code were preferred. The proposals in the latest Bill did not form part of the Labour Government's manifesto, and so has come somewhat unexpectedly to the industry.
How and to what extent will the proposals impact investment?
UORR are critical to property valuations for investment and lending decisions. Overall we would expect it will have a twofold investment impact: (1) immediately once the measures are introduced, and (2) between now and their introduction, investment (particularly from overseas investors) will potentially be deterred and economic growth impacted. The risk of potentially greater downwards variability in cash flows will now need to be appropriately priced – and a downward trend in pricing relative to higher construction costs could then also deter newbuild commercial development viability, which in turn could adversely impact the Government's infrastructure and industrial strategies.
How it will affect wider sectors e.g. industrial and logistics?
The Government report that the measures are intended to address vacancies on high streets and support occupation for SMEs and hospitality businesses. The reality is that the new measures will have a much wider impact across all areas of commercial property, covering all sectors and particularly the Industrial & Logistics and retail sectors (e.g. out of town retail parks) where vacancy rates are usually relatively low, lease terms longer and, in our experience, parties are typically well advised. My view is that the benefits to SMEs are probably limited because many will hold shorter leases that do not include any rent review. Longer leases, where this impact will be felt, are much more common in sectors such as I&L and retail parks - both of which provide vital economic contributions.
The extent that continuing to allow indexation mitigates impact
One partial solution could be to say that the reviewed rent will be the higher of market rent and indexed rent (whether or not either figure is higher than the passing rent, i.e. so there is no upwards only mechanism). So, if market rents (which are relatively more volatile) go down, the landlord would still be protected to get at least indexed rent by reference to CPI, which is highly unlikely to be negative over a 5-year period. You'd be quite unlucky for both of the "reference rents" to go down during that period. Whether or not tenants would accept this commercially is of course another matter!
Unforeseen consequences: Potential to increase disputes and increase complexity of leases?
The proposals will likely increase - and incentivise - disputes and litigation between owners and occupiers over what market rents might be. Often these disputes are avoided currently because, worst case, proposed rents will remain the same. Yet under the Bill, tenants will be able to trigger the downwards review (even if the express terms of the lease are drafted in way so as to prevent them from doing so). Landlords will naturally want to protect their position and maximise rents, so this will likely lead to greater dispute and cost. It will also increase the time and cost of negotiations including for SMEs. There are already considerable and well known problems with such negotiations at lease renewal – this will only perpetuate that.
Anything else of relevance?
Generally in our experience, our investor clients want productive and collaborative relationships with their customers - the tenant. They also want to address empty properties in town centres, especially given their income is derived from rent so vacant assets do not fit within our clients' business plans. The high levels of vacancies aren’t necessarily a symptom of a power imbalance between landlords and tenants (as the proposals seem to suggest), but rather a fundamental lack of demand and oversupply of space in Town Centres. In a nutshell, there are other macro factors which ultimately need to be considered as this Bill makes its way through Parliament and we look forward to actively contributing our view going forward in conjunction with other industry bodies.
If you would like to discuss the impact that this will have on you or your business, please get in touch.
