Government looks to ban upward only rent review clauses
The Government has shocked the landlords and investors by seeking to ban upward only rent review clauses as part of its Devolution Bill announced in Parliament yesterday.
By Liza Helps, Property Editor, Logistics Matters
WHILE THE news may be of great relief to many tenants, the fact that the announcement came with no prior consultation or warning has created shockwaves throughout the commercial property sector.
The British property Federation CEO Melanie Leech CBE, said: “Interference in long-established commercial leasing arrangements without any prior consultation or warning has no place in the Devolution Bill.
She warned: “It risks investor confidence at a time when development viability is already seriously challenged. Unfortunately, this is another example of a government getting mired in detailed market issues rather than focusing on the big picture of enabling and empowering local public and private stakeholders, including property owners and their customers, to work together to drive economic growth and create thriving town centres.”
It is clear that the move is meant to help the high street, but the ban will include all commercial property including warehousing. Open market upward-only rent reviews are common in UK commercial leases and mean the rent can only increase or stay the same at review, with most reviews taking place once every three or five years.
The move to ban them with no warning or consultation has been deemed ‘ridiculous’ with some saying that it will have ‘huge consequences’ for the property market. Colliers Director James Redman wrote in a blog today that existing leases will remain unaffected, however, with rents being able to move both up and down there is concern that this will impact income predictability and may reduce capital values of properties with new-style leases.
And it may not actually be that good for tenants in the long run either, in a LinkedIn post one rent review specialist Allsop’s John Banbury noted that the property market is very good at rebalancing itself and suggested that the alternative could see tenants faced with index-linked reviews rather than open market reviews.
He warned: “Tenants won’t want to be locked into index linked leases( which generally outperform market growth in the UK – especially on secondary property).” He added as a consequence a tenant facing a rent review will be forced to choose between vacating their premises or paying a rent that is even higher than it would have been in an upward only open market review.
The Labour Party has been keen to tackle the issue for a number of years and when it was last in power put forward the notion of banning upward only rent reviews but dropped the idea in 2005 after a Office of the Deputy Prime Minister commissioned report by Reading University found that tenants were more concerned about lack of flexibility in assignment, subletting and the range of alternative lease prices. In 2022 the issue was brought as a Private Members Bill in March 2022 by LibDem MP Sarah Olney only to be dropped due to lack of time.
