Banning Upwards Only Rent Reviews: A fundamental shift or a storm in a teacup?

• What is being proposed?
• How are lease agreements likely to change?
• A greater focus on rent reviews?
• Would it help the high street?
• Investment market challenges
• Potential scale of impact
• The Republic of Ireland – a useful precedent?
• Conclusion

A proposal to ban UORRs was included in the English Devolution and Community Empowerment Bill, which received its first reading in the House of Commons in July. MPs will consider the Bill at its Second Reading in September, and it is likely that there will be extensive industry lobbying. The proposal could be significantly amended, or indeed may not make it onto the statute books at all.

The ban would apply to:

• all new commercial leases in England and Wales
• all lease renewals (irrespective of whether or not they are contracted out of the 1954 Act)
• all review mechanisms, including open market, indexation, and turnover
• base rents and ‘collars’.

Importantly, the ban would not apply retrospectively to existing leases.

Other key points:

• Fixed or stepped rents will still be permitted.
• Tenants will gain the right to trigger the rent review at any point during the lease.
• The ban is scheduled to apply from 2027/28.

The legislation aims to prevent loopholes that would circumvent the ban. But how will landlords react?

We think landlords are likely to shift the terms on which they offer leases. They may, for example, demand higher base rents to counter increased risk at rent review. Indeed, the government’s own impact assessment acknowledged the possibility that market rents will increase initially, although it expects market forces to restrict this.

Fixed uplifts, stepped rent increases and indexation are likely to become more commonplace. In a tight market, landlords could insist upon agreements such as a 10-year index-linked rent, a fixed uplift in year 5, or the higher of market rent or CPI, for example. Conversely, in a weaker market, landlords may be less inclined to offer additional rent free periods (their current preferred option rather than reducing headline rents).

Indexation to inflation could also mean increased rental costs for occupiers over the term of the lease. Looking at the last 20 years, the MSCI all-property index shows an increase in rental values of 1.2% per annum, compared with RPI at 3.7% and CPI at 2.9%. Industrial, the strongest performing sector, saw growth of 2.7%, still lower than either inflation measure, whilst retail rents fell by an average of -0.6% per annum.

The last five years have seen exceptionally high inflation, and this would leave tenants even worse off – except in the booming industrial sector. RPI has averaged 6.2% per annum, with CPI at 4.6%. All-property rental growth was just 2.2%, and of the three main sectors only the industrial market has outperformed inflation on the MSCI measure, at 6.9%, with retail still negative at -1.5%.

So inflation has largely outpaced average rental growth – although this clearly would not have been the case for some prime commercial markets, where rental growth might have significantly outpaced both the average MSCI index and inflation.

Figure 1

Source: MSCI, Carter Jonas research

Figure 2

Source: MSCI, Carter Jonas research

Despite the risk of higher costs, some occupiers might actually welcome a move to greater indexation as it does provide certainty about future cashflows, in contrast to the unpredictable increases associated with open market reviews (bearing in mind that property is typically the second highest cost for businesses after salaries).

Due to the standard rent review cycle, a ban on UORRs would mainly impact leases of over five years, which are now predominantly found in segments such as prime offices, prime industrials, and some larger retail units.

Rent reviews typically coincide with break options, which have always been used by tenants as a negotiating tool to minimise any increases (indeed, these have always effectively been up or down reviews). Following a ban on UORRs, every rent review is potentially a negotiation where the tenant can argue for a decrease in the rent. And in cases where the tenant is holding over, they may now have more power to negotiate a lower rent.

A ban on UORRs may well increase the number of rent reviews undertaken as, for example, a tenant may not simply assume that the rent will remain unchanged in a relatively flat market. The surveying industry will also need to bear this in mind, given the limited number of experienced rent review surveyors.

Valuers, too, will need to be more aware of prevailing market rents, as a nil increase will no longer be guaranteed in markets with little or no rental growth. Closer attention is also likely to be paid to rent review clauses when drafting a lease.

Although the proposed UORR ban will apply to all commercial property, the government’s central aim is to help protect the vitality of high streets.

Its impact assessment states that it will “help remove potential landlord manipulation of the market, with the aim of making commercial leases fairer for tenants, the market more efficient, and ultimately contribute to thriving high streets and economic growth.” It further argues that “tenants are paying higher rents, especially during economic downturns, leading to more vacant units, lower number of tenants and/or lower profits”.

However, high street rents have now largely rebased following a lengthy period of downward adjustment. This legislation has therefore probably ‘missed the boat’, and any impact of introducing the UORR ban is now likely to be minimal in terms of addressing future downward rental movement (unless there is a broader market downturn).

We also think the government has a very narrow view of the challenges faced by the high street and the broader business community. There is a strong argument that reforming Business Rates would have a much greater positive impact. Business Rates are a significant cost for retailers, with infrequent revaluations meaning that the rates payable may not reflect the prevailing rental values upon which they are calculated. Recent increases in National Insurance contributions and the National Living Wage have also added significantly to retailers’ costs. And for many high streets, the structural change that has swept the sector mean there is simply no longer a viable retail market at all.

Going forward, the proposed tightening of Minimum Energy Efficiency Standards (MEES), will also create a huge challenge across the commercial property sector, burdening landlords with significant additional costs which are likely to be passed onto occupiers, as well as potentially reducing choice for occupiers as properties become legally unlettable.

Furthermore, retail leases are more likely to be outside of the scope of UORR changes than most other commercial sectors. Some larger high street retailers have much longer leases than are typical across the wider market – in some cases longer than the traditional 25-year institutional lease. As the UORR ban is not being applied retrospectively, these longer leases might not come within scope for some considerable time (although break options may present occupiers with leverage). Conversely, many smaller retail units are on very short leases of less than five years, and will also be unaffected.

In addition, turnover rents have become more commonplace, particularly within shopping centres. And there are many examples of retailers who pay no rent at all, for example through simply generating valuable footfall within a centre.

Finally, the use of Company Voluntary Arrangements (CVAs) by retailers frequently leaves landlords out of pocket. Other creditors are typically prioritised, meaning landlords can be forced to accept a significant rent reduction (or lease termination). This effectively becomes a downward rent review, irrespective of rent review legislation.

Overall, we think there will be little impact on the high street from the proposed UORR ban. On a positive note, if it were to increase retailer confidence to expand (or at least hold) their physical portfolios, this would clearly be clearly welcome - even it if is not likely to be a ‘game changer’.

Given broader market uncertainties around global political and trade tensions, as well as lacklustre domestic economic performance, we view the timing of the proposed ban as unhelpful in terms of market confidence.

The government’s impact assessment expected a loss of rental revenue to landlords over the course of the property cycle. In our view, whilst the ban on UORRs will be a consideration for investors, we do not expect a significant impact on the investment market in terms of volumes or pricing.

We do, however, anticipate the following impacts:

• Existing longer leases with an UORR clause could gain a modest premium.
• Landlords could see increased costs from undertaking more rent reviews (as more occupiers argue for a reduced rent).
• Some markets have a pronounced rental growth (and capital value) cycle, and could see their perceived level of risk increase further. A notable example is the City of London office market, which has a marked development cycle, in contrast to the more constrained nature of the West End’s supply pipeline.
• Broader market risk could increase, albeit only modestly, due to a reduced ‘cushion’ for investors in the event of a significant downturn (such as the global financial crisis, when average rental values fell by more than 10% peak to trough, according to MSCI). Even in this scenario, the impact would only feed through gradually, assuming a portfolio of leases with five-yearly rent reviews.
• Lenders may lower their LTV ratios to minimise risk in the short term.

There is unlikely to be an impact on yields, as it would normally be assumed that the tenant exercises their break option at year five, with the property returning to the open market value.

For risk-averse investors, longer leases with open market reviews have always been an attractive proposition. Such investors will allocate funds towards stable markets where rents have changed very little in recent years.

We think the biggest impact is likely to be a short-term reduction in confidence. Ultimately, if the proposals help the high street as the government hopes (although we are sceptical), this would be welcomed by investors.

The government’s impact assessment on banning UORRs anticipated lower rents for tenants in the long run, but we think the impact will be limited by market fundamentals.

Lease terms

The widespread use of five-year upward only rent review clauses means that many leases will be unaffected. For example, half of all new commercial leases signed in 2024 within the MSCI universe were for five years of less. The figure is slightly higher for retail and offices (56% and 54% respectively), and a little lower or industrial (42%).

However, the MSCI figures almost certainly overstate the overall proportion of leases being signed for more than five years, as they refer to a basket of properties owned by institutional investors and property companies, and are weighted towards higher quality property for which they require the security provided by longer leases. Indeed, the overwhelming majority of secondary properties are let on no more than a five-year lease, and will therefore not be affected.

Conversely, for high quality offices, 10-year leases with a break in year 5 are commonplace, and leases of 15 years are still being negotiated for the highest quality space. It is this segment of the market that stands to see the greatest impact.

A further consideration is that many leases are now indexed rather than reviewed to open market rents - typically to a measure of inflation (most commonly RPI or CPI). Although inflation can be negative (deflation), this is extremely rare for more than short periods. Therefore, inflation-indexed leases will almost always be upwards in practice.

Rental performance

Figures 3 and 4 illustrate the change in average rents over five years since 2020 (using the MSCI Quarterly Index), for selected commercial market segments.

Retail rents have been through a lengthy period of rebasing – with the most notable impact being on the high street segment – reflecting the structural change that has swept the sector. This rebasing is now largely complete – MSCI figures show that UK retail rents are now rising (by 2% over the 12 months to June 2025, according to the Monthly Index, having fallen by nearly 20% peak to trough).

Offices at the UK level and in London’s City and West End markets, have not shown a decline over five years at any point (despite the impact of the pandemic). Secondary offices, like retail, have performed less well, and have been through a period of rebasing, but again, this segment has now largely found a floor.

Meanwhile, industrials have seen significant outperformance due to structural market change, with growth over five years reaching a stellar 40%.

Figure 3

Source: MSCI, Carter Jonas research

Figure 4

Source: MSCI, Carter Jonas research

The market readjustments following the pandemic are now largely complete, although the commercial property market is intrinsically cyclical and subject to periodic downturns. In addition, individual markets remain susceptible to downward adjustments due to local factors (for example, if a town’s major employer were to cease trading). In these instances, the ability to review rents downwards may speed up the necessary adjustment in rental values.

The largest future downward adjustments are likely to be for secondary property. Ironically, this is the very segment that is unlikely to have leases of more than five years.

There will be a considerable time lag for the UORR ban to have any impact, as it only applies to new leases or renewals, which would take five years to feed into the first rent review (assuming this is the approach adopted). In addition, the legislation is not likely to be implemented until 2027/28. Therefore, any impact would not be felt until 2032/33, assuming the traditional five-year rent review model still applies.

The Republic of Ireland banned UORRs in 2010, and provides some useful context.

The market had seen a significant fall in both capital and rental values following the 2008 Global Financial Crisis (MSCI data shows that prior to the ban in February 2010, all-property capital values had dropped by 56%, and rental values by 22%). By permitting rents to fall at reviews, the government sought to ease financial pressure on occupiers, making rental costs more sustainable and reducing the likelihood of insolvency.

The timing of this ban during a severe market downturn is a key difference with the current broadly stable conditions in the UK market. Mirroring the UK government’s current proposal, the ban was not applied retrospectively, and five-year rent reviews were also standard. Therefore, the first upward and downwards reviews did not occur until 2015, by which time rents were 37% below their pre-recession levels at the all-property level – although the economy and commercial market was in recovery phase and rents had started to rise again.

Whilst there was some short-term instability, valuers and investors quickly adjusted their models and the market adapted. Ireland saw an increase in inflation-linked and turnover leases, and leases became shorter – although this likely simply accelerated a trend that was already under way.

The ban initially led to the emergence of a two-tier market, with a modest premium for leases containing UORRs, and also it also led to an increase in legal disputes concerning leases drafted before the ban. Ultimately, however, there was little discernible long-term impact on the market.

The government hopes that by banning UORRs, rents will be able to adjust to market conditions during a downturn. In particular, it hopes this will help invigorate the high street.

Given the average length of time needed for a downward adjustment to take place based on a five-yearly rent review cycle, and the plethora of other challenges facing retailers (some of which, such as Business Rates, the government is in a position to help ameliorate), the UORR ban is unlikely to make any significant difference to most retailers. The market has largely resolved the inflexibility of upward only rent reviews through the phasing out of the traditional 25-year lease, and most leases are now too short (or in some cases too long) to be affected.

At the same time, the proposed ban does present a risk for certain segments of commercial property such as prime central London offices (and the City of London in particular), where 10 or 15-year leases are still common for top quality space, and the market is more cyclical.

The proposed ban may not make it into law, or it may be heavily modified during its passage through parliament. If it is implemented, this report has identified some important implications that occupiers, investors and market practitioners should consider. However, we think the overall impact should be modest, and will prove to be much more of a storm in a teacup than a fundamental market shift. 

© Carter Jonas 2025. The information given in this publication is believed to be correct at the time of going to press. We do not however accept any liability for any decisions taken following this publication. We recommend that professional advice is taken.