What is Changing?
Currently, most commercial leases in England contain upwards-only rent review clauses, meaning rent can rise at review, but never fall.
Under the proposed reform:
- New and renewed leases will no longer be able to include upwards-only clauses.
- Existing leases will remain unaffected until renewal.
- Stepped rent increases (pre-agreed rises at set intervals) will still be permitted.
- The government may introduce further exceptions such as rent caps or collars.
For landlords, this means future leases will need to account for potential downward adjustments in rent, requiring more careful forecasting and risk management.
What Alternatives Will Still Be Allowed?
To help maintain some predictability, landlords will still be able to use:
- Fixed or stepped rent increases: Where rent rises at pre-agreed, known intervals.
- Index-linked rent reviews: Inflation-linked reviews will still be allowed but must move both up and down.
- Caps and collars: Potential limits on rent movements may be permitted in certain cases.
Landlords can still rely on these tools to manage income predictability, though they will need to factor in the possibility of rent reductions as well as increases.
What Does This Mean for Landlords?
The commercial property sector has raised concerns about the potential impact of this reform, which was introduced without prior industry consultation.
Key considerations for landlords include:
- Income uncertainty: With rent now able to move both ways, income projections and cash flow stability could become less predictable.
- Property valuations: Assets may be valued differently due to greater rental volatility.
- Investor confidence: The shift may influence lending decisions and long-term investment strategies.
While designed to create fairness for tenants, the reform also poses challenges for landlords in maintaining stable returns. Landlords will need to adapt by reviewing lease structures, incorporating risk mitigation strategies, and considering more flexible financial planning to navigate the potential fluctuations in rental income.
If you’d like to understand how these changes could affect your portfolio or leasing strategy, contact Howard and Over and speak to our expert Jacob Cunningham for tailored advice.
