What goes up must come down after all – this really is the end of the upward only rent review

A recap on the main provisions of the ban

We discussed how the ban would operate in practice in Could this really be the end of the upward only rent review? but by way of recap:

• any lease containing UORR clauses entered into after the ban is implemented (subject to our comments above) will be interpreted so that if the index linked mechanism or the open market review would have resulted in a lower rent than the passing rent, then the lower rent shall be payable – in other words any “upward-only” element will be disapplied.
• caps on rental increases in any review mechanism are permissible but a collar preventing the rent from falling below a certain level (whether or not combined with a cap) would be prohibited. The Government has however indicated that it intends to consult further on such arrangements, particularly where the landlord has agreed a cap on any increase in combination with any collar on any decrease. It goes without saying that caps and collars, potentially with a maximum or minimum percentage increase, would bring welcome certainty for landlord and investors alike.
• stepped rents (i.e. fixed increases or fixed percentage increases), index linked rents and open market rent reviews (provided in both cases there is no upward-only component i.e. they can move down as well as up) are permissible and not impacted by the ban.
• the Act does not expressly permit or prohibit the use of more than one variable mechanism which means for example that in theory the rent could be reviewed to the higher of a rent linked to RPI and the open market rent (on the basis that both these measures could in theory go up or down). Further Government guidance is however expected on this point.
• the prohibition applies to business tenancies whether they benefit from security of tenure or they have been contracted out and so it will apply to statutory renewals under the 1954 Act. Where an existing lease does not contain a contractual renewal option, the renewed lease (whether agreed between the parties or ordered by the court) will be subject to the ban once the ban comes into force.
• once the ban is in force any clause in a headlease that requires subleases to include UORR provisions will be unenforceable. Rent under a sublease just as in any other lease will need to be capable of upward and downward review. This of course creates a risk for intermediate tenants whose pre-ban lease may well lawfully contain an UORR, but who could face a shortfall on the income received from a post-ban sublease.

Action stations!

Even though the ban is unlikely to come into force until late next year at the earliest parties need to be live to the issue now because there are immediate implications for how renewal arrangements are drafted and when they are agreed.

• • Review: Audit live transactions and any renewals agreed since 17^th March 2026 looking carefully at anything that may constitute an Arrangement whether contained in a lease or the wider transaction documents to ensure that rental terms remain operable as intended.
  • Take action: As mentioned earlier, a lease granted after the ban but which was entered into pursuant to renewal arrangements entered into on or after 17 March 2026, will be caught by the ban. As part of renewal negotiations parties will therefore need to agree how rent is to be determined under such renewal leases because day one UORR provisions will be invalid. Landlords in particular may also want to consider renewing or re-gearing leases early (before the ban comes into force) to preserve UORR mechanisms. Standard heads of terms which assume an UORR will also need revisiting.
  • Consider the alternatives: In light of the pending ban, property owners will need to consider and discuss with their advisers what alternative structure or model is most suitable for them in terms of managing the inflation risk previously absorbed by the UORR mechanism. Options include:
    • Rents being reviewed in line with changes to a specified index such as RPI or CPI (which can of course go up or down though is less likely to fall than an open market rent).
    • Agreeing stepped increases in rent at agreed intervals whether that be by way of amounts specified at the outset or percentage increases.
    • Agreeing leases with higher headline rents and more frequent reviews.
    • Granting reversionary leases rather than options to renew on the basis that reversionary leases granted before the ban comes into effect are not caught.
    • Avoiding a rent review altogether by agreeing shorter leases with no rent review and when the lease expires negotiating a new rent in the open market.

Conclusion

Setting aside the limited retrospective application of the ban, a line will necessarily be drawn in the sand when the ban comes into force creating a situation whereby there are leases that contain lawful UORR provisions and those that do not. The impact that this will have on the investment market is something that is hard to gauge at this stage but something to be aware of.

One thing we can be sure of is that the ban will require both landlords and investors to reconsider how rental growth can be achieved with the ban looming. For tenants the impact will be felt in the course of lease negotiations and renewal planning.

The bottom line is that alternative rental structures have to now form part of renewal negotiations to avoid including provisions which are unenforceable once the ban comes into force and it is critical that all parties understand the full mechanics and potential impact of any rent review clause before entering into a renewal arrangement or a lease. Tenants in particular should be aware of rent review mechanics which include multiple bases of review because it may be that even with the UORR ban, the ability for downward movement is compromised when the rent is benchmarked against more than one measure.

For now, we await details of any Government consultation particularly in relation to the application of caps and collars as well as further formal guidance which will be welcomed by landlords and tenants alike.

How we can help

If you would like to discuss how these changes may affect you, please do contact our commercial real estate team.

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