Written by Caroline O’Flaherty, Partner and Head of Social Housing, and Edward Strugnell, Solicitor in Commercial Property.
The English Devolution and Community Empowerment Act 2026 (“the Act”) has attracted significant attention for its reforms to local governance and community powers. However, one of the most significant and potentially far-reaching changes for commercial leases is the restriction on upward-only rent review (“UORR”) provisions in new business tenancies.
UORRs have long been a standard feature of commercial leases. Traditionally, these clauses ensured that following a rent review, rent could either increase or remain the same, but never decrease. Even where market rents fell, tenants could still remain liable for the higher historic rent.
What does the Act say?
The Act prohibits upwards only mechanisms where the potential rent increase is unknown at the time the lease is granted. This means rent review mechanisms linked to 1) open market rent; 2) inflation or index-linked increases; and/or 3) turnover review which all contain an upward-only element will no longer be permitted. Under the new rules, if market rents have fallen, landlords would no longer be able to rely on the higher historic rent following review.
The restrictions will apply to business tenancies in England and Wales, including leases contracted out of sections 24-28 of Part II of the Landlord and Tenant Act 1954.
The Act also contains anti-avoidance provisions designed to prevent landlords from recovering the difference through side agreements or separate arrangements. Any agreement requiring the tenant to pay more than the permitted amount is void.
When does the Act come into force?
The Act received Royal Assent on 29 April 2026, although the rent review provisions are not yet in force and will likely come into force in 2027.
The new rules will apply to new commercial leases granted once the relevant provisions come into force, including certain renewal leases. Existing leases will generally not be affected. However, the Act also contains transitional provisions designed to prevent parties restructuring lease arrangements before the changes formally take effect. In particular, certain tenancy renewal arrangements entered into on or after 17 March 2026 may still fall within the new regime.
Why is the government making these changes?
The government has stated that the reforms are intended to make commercial leasing fairer for tenants, ensure high street rents are set more efficiently and support economic growth. The reforms also reflect concerns that upwards-only rent review provisions can leave tenants paying rents above current market levels during economic downturns, potentially affecting profitability and increasing pressure on struggling businesses.
Caroline comments:
“While greater flexibility for occupiers may be welcomed by many businesses, policymakers will also be mindful of maintaining investment into commercial property and regeneration projects. The long- term success of these reforms will depend on how effectively those competing interests are balanced.”
What does this mean for landlords?
For landlords, upward-only rent reviews have historically provided certainty of income and helped protect investment values. Their removal may affect property valuations, financing arrangements and appetite for long-term commercial investments.
As a result, landlords may begin considering alternative lease structures, such as shorter lease terms, stepped rents or fixed rental increases agreed at the outset of the lease. However, landlords will still need to ensure that any alternative arrangements comply with the legislation and do not operate in practice as upward-only rent reviews.
The reforms may also prompt a wider reassessment of how risk is allocated between landlords and occupiers within commercial leasing arrangements.
What does this mean for tenants?
From a tenant’s perspective, the reforms are likely to be welcomed, particularly in sectors where trading conditions can fluctuate significantly.
The changes may provide greater protection against paying rents above current market levels during economic downturns and may improve business sustainability in weaker markets.
Tenants could potentially gain greater negotiating leverage when agreeing new leases, particularly where landlords seek to offset the loss of upward-only reviews through shorter lease terms or additional protections.
Potential criticisms and market concerns
It could be argued that the reforms have come at a time when the market was already beginning to correct itself. Increased vacancy rates in certain retail and secondary office markets, together with greater competition for tenants, have already encouraged some landlords to agree more flexible leasing arrangements, including shorter lease terms, turnover rents and rent review provisions with greater tenant protections.
There are also concerns that the reforms could create uncertainty within the investment and lending markets while new “market standard” lease drafting develops. Commercial lenders have historically relied upon predictable rental income streams when assessing the security value of investment properties and may take a more cautious approach where lease drafting is inconsistent or does not reflect established market conventions.
The English Devolution and Community Empowerment Act 2026 represents one of the most significant changes to commercial leasing practice in recent years. While the reforms are intended to support tenants and revitalise town centres, they also represent a substantial shift in the balance of risk between landlords and occupiers.
Both landlords and tenants should begin considering how these reforms may affect future lease negotiations, investment decisions and long-term property strategies. The key question will not simply be how rent review provisions change, but how landlords, tenants and investors respond to a significant shift in the allocation of leasing risk.
