Sarah Keens comments in Property 118 about how banning upward-only rent reviews could create instability in England's rental market

Under the English Devolution and Community Empowerment Bill, the Government announced last year a ban on commercial landlords adding increase-only rent review clauses to new contracts. Such clauses normally occur every three to five years in a lease, allowing rent to increase or remain the same but never decrease. 

A ban on upward-only rent reviews could make turnover rents become more common, where rent is linked to the performance of businesses occupying premises. Commercial landlords might also face reduced transparency in the market.

This significant development for the commercial property sector marks a change from existing income stability mechanisms, which may see investors reconsider their ongoing strategy and financing structures. Tenants could benefit from potentially falling rents, as rent reviews will be valued on the basis of market conditions. However, landlords may reconsider other incentives such as rent free periods, break clauses or capital contributions as they look to mitigate any impacts of this shift.

Sarah Keens, Associate in our Real Estate team, comments in Property 118:

This is a significant development for the commercial property market and creates potential interference with income stability mechanisms that underpin asset valuation, financing structures, and long-term investment strategy.

"We are already getting lots of calls from clients in the institutional investment market who are asking for advice on how this legislation will affect their ongoing strategy. However, no doubt the market will readjust as this change is implemented. 

Read the full article in Property 118 here.