Welcome to the third edition of RED Alert of 2025.
Also featuring in this update:
On 10 July 2025, the English Devolution and Community Empowerment Bill was presented to Parliament. With no prior notice or consultation, the Bill contained a ban on upwards only rent reviews within business tenancies as defined under the Landlord and Tenant Act 1954. Key elements are discussed below, along with practical considerations. The Bill could create further instability in a sector already facing economic and structural pressures.
Proposed amendments
Scope of Application - the provisions apply to all business tenancies where there is a 'relevant rent review term' (RRRT). This is any rent review provision where the uplifted rent is not known or fixed in advance and which provides for a 'reference rent' – calculated either in line with market, by inflation linked mechanisms, side-by side rents or by the tenant's turnover. Where the rent after review is to be higher than the reference rent, the uplift would be disapplied and the reference rent becomes payable. This includes cases where the amount of the new passing rent would be smaller than the rent under review but still larger than the reference amount.
Fixed or stepped increases will not be caught by the provisions.
Tenant’s right to trigger a rent review: under the draft Bill, tenants would have the right to initiate a review if the contractual provisions are caught by the new Act.
Anti-avoidance provisions: the anti avoidance rule provides that an agreement (whether contained in the instrument creating the tenancy or not) will be void if it purports to require the tenant to make a payment in respect of any difference in an amount of new passing rent which results from the operation of the statutory provisions.
Put options: the new regime also captures put options — agreements allowing the landlord to require the tenant to accept a new tenancy. As with the rent review provisions, it applies only to those options granted after commencement and only if the rent for the new premises was not determined at the time of the agreement.
Potential effects on the market
Shorter tenancies: landlords may prefer to grant shorter terms without rent review provisions introducing uncertainty for tenants who may need to compete with new tenants on premises where they have established goodwill.
Preference for alternative structures: fixed or stepped rent increases, rather than inflation-linked or open-market reviews, could become more attractive, as they would lie outside the scope of these proposed changes.
Sectoral and regional impact: with this change Government is hoping to revitalise high streets. However, most retail tenants now have shorter leases with no rent reviews so will not be impacted. Instead, they are likely to affect other asset types such as life sciences where tenants' large up front fit out costs merit longer terms.
The effects may be most keenly felt in regions where Government aims to encourage investment. If landlords view these changes as unfavourable, it may deter them from investing in the very areas the Bill seeks to uplift.
Renewals: although the legislation will not operate retrospectively, renewal leases will fall under its scope, raising valuation and financing questions for landlords and lenders alike.
Superior Interests and Lenders
A superior lease will likely require landlords to impose upwards only rent reviews on any undertenants, meaning a landlord may end up in breach of covenant.
Additionally, lenders will have based their financing calculations on projected income not falling below a certain level. Where rents fall below this level this will affect borrowers' loan to value covenants.
Challenges and legal disputes
The Bill may be open to legal challenges with landlords claiming the right to peaceful enjoyment of possessions (A1P1 under the European Convention on Human Rights).
Practical considerations
For landlords
- Valuation and financing: assess the effect of the proposed changes on property valuations and banking covenants.
- Portfolio review and lease strategy: identify which current or future tenancies are likely to be impacted and weigh up whether to trigger lease renewals prior to enactment. Consider renegotiating terms now to avoid being caught by the new law.
- Lobbying: those concerned about the Bill’s negative impact may wish to engage with MPs, industry bodies, or government consultations.
For tenants
- Negotiating leverage: tThe potential for the legislation to curb upwards-only rent reviews could offer tenants an opportunity to seek favourable rent clauses now.
- Wider impact: while the rules may reduce rent inflation for some tenants, they could also deter landlord investment, affecting the quality and availability of business space.
- Portfolio analysis: tenants should review holdings where renewals or new leases are expected soon, as there may be greater negotiation opportunities.
Looking Ahead
No date has been set for the Bill’s second reading. Some commentators suggest the changes may be narrower in scope than first feared but real estate markets thrive on certainty. The abrupt manner of the Bill’s introduction and the minimal consultation to date indicates potential for challenge.
Landlords and tenants alike are well advised to keep an eye on developments, engage in consultation opportunities, and take professional advice on how to structure leases and agreements going forward.
How we can help
Speak to us to understand how to structure your portfolios in light of the Government’s plans.
