There have always been rules and regulations governing residential tenancies – but historically there has been little regulation regarding commercial tenancies. The only Act of note is the Landlord and Tenant Act 1954 and that is 70 years old.
The thinking behind this approach was that the parties to commercial leases were commercial organisations themselves. They had the benefit of professional advice when entering into their leases so there was no need for the Government to intervene.
However this approach is about to change.
On 10 July 2025 the Government introduced the English Devolution and Community Empowerment Bill into Parliament. The majority of the Bill relates to the devolution of power from Westminster to local authorities but tucked away in Clause 71 and Schedule 31 of the Bill are two clauses relating to amendments to the Landlord and Tenant Act 1954 with potentially far reaching consequences for commercial landlords.
In summary these provisions would:
- Prohibit upwards only rent reviews in new commercial leases and renewal commercial leases.
- The prohibition will not apply to upwards only rent reviews in existing commercial leases.
- Stepped rents (where the rent rises at specific times during a lease) are not caught by the prohibition.
- Index linked reviews will be permitted but only if the reviewed rent is capable of being lower than the passing rent.
- Put options where the tenant is required to take a new lease and the rent payable at the start of that lease cannot be determined when the put option is entered into, will also be banned..
The aim of the above provisions is to protect tenants in a soft market.
Clearly these provisions are just proposals at present but, if enacted, what will be the consequences for commercial landlords?
- The landlord “guarantee” of static or increasing rent that these clauses provide will disappear.
- This is likely to become a factor in commercial property valuations in the future as lenders become more cautious on the rental streams from a property.
- Stepped rents are likely to become the preferred option to increasing rent during the term of a lease.
- Market rent reviews will become less common.
- The trend to shorter leases will continue and perhaps even leases without any reviews at all.
