Upwards-Only Rent Review ban on the cards

The Government’s English Devolution and Community Empowerment Bill includes provisions that could prevent ‘upward-only’ rent reviews in commercial buildings.

The effect of the new regulation would be to prevent rents in commercial properties increasing beyond a ‘reference amount’ during rent reviews or when entering into new tenancies. The Bill, which was introduced to the House of Commons on 10th July, also provides means for commercial tenants to trigger and facilitate these reviews.

The ‘reference amount’ for rent reviews and new tenancies would be determined by one or more of the following factors: the effect of inflation on the rent; the amount of actual rent for the premises; a hypothetical market rent, or ‘notional’ rent, for the premises; the amount of the tenant’s turnover.

If the rent review or new tenancy requires an new passing rent or initial rent that is higher than the calculated reference amount, then those terms are ‘rendered ineffective’. The rent would then default to the ‘reference amount’.

The sponsoring department for the Bill is The Ministry of Housing, Communities and Local Government, headed by Deputy Prime Minister Angela Rayner.  The wording of the Bill at this time implies that the regulation would apply to new tenancies agreed or rents reviewed only after it is introduced into law.

The Regulatory Policy Committee (RPC), which assesses the potential impacts of new legislation, notes: “These (upward-only rent review UORR) clauses allow landlords to only increase rents at pre-agreed review points even if market rates have declined which has led to concerns about market inefficiencies, inflated rents and impacts on small businesses. Banning such clauses aims to make the leasing system fairer.”

A date for the second reading is yet to be confirmed and there are nine more stages before the Bill could be given Royal Assent to become an Act.