The future of upwards only rent review and their impact on commercial property lending

For lenders and investors, predictable rental income is a cornerstone of commercial property value. The long-standing use of upwards-only rent review clauses (UORRs) in UK leases has provided certainty, ensuring that rent can only stay the same or increase at each review date. However, government plans to prohibit UORR clauses in new commercial leases could materially alter income assumptions and risk profiles across the lending market.

Understanding upwards only rent reviews and rationale for the ban

UORRs ensure that, at each rent review (typically every five years), the rent can only increase or remain the same—it cannot decrease. This protects landlords and lenders from falling rents but can leave tenants paying above-market rates during downturns. UORR therefore place all downside risk in tenants, with landlords being protected regardless of market shifts. The ban on UORR has been positioned as a mechanism to create a more balanced relationship where both sides share that risk.

What would the reform do?

If enacted, the ban would apply to new business tenancies and renewal leases entered into after the law takes effect. Existing leases and pre-commencement agreements will not be affected. Anti-avoidance provisions are included to invalidate agreements or side deals that attempt to circumvent the ban. If there is a rent review mechanism in the lease that only the landlord can trigger, the legislation will allow the tenant to trigger the review, and therefore landlords won't be able to avoid a rent review if it is likely to result in a reduced rent.

What could this mean for lenders?

The ban on UORR could lead to increased volatility in rental income, affecting the perceived security of commercial property investments. Lenders may face increased risks as property values and rental incomes become more susceptible to market fluctuations. Valuers may need to reflect greater downside risk when determining yields, while lenders could revisit underwriting criteria, stress-testing assumptions and security documentation to ensure resilience in a two-way rent market. The reform may also prompt a shift toward fixed or index-linked rent uplifts, which retain income stability but offer less alignment with true market value.

Investor sentiment may also shift with institutional and overseas investors being hesitant if income predictability weakens.

Landlords are expected to respond by offering shorter leases, increasing initial rents or using fixed, stepped or indexed rents (without collars, which will not be permitted). Proactive asset management will therefore be vital to maintain occupancy and drive growth through renewals and re-lettings.

What happens next?

The bill may change following debate and industry consultation (of which there was none, before the government announcement was made.) Investors and lenders should track developments, especially for upcoming transactions, and take advice on lease structuring ahead of the new potential regime.