Plans to ban upwards-only rent reviews in commercial leases will “undermine property values”, say property professionals.
Deputy Prime Minister Angela Rayner included the measure in the government’s English Devolution and Community Empowerment Bill last week.
The legislation proposes to abolish these clauses in new commercial leases that cover high street businesses, offices and manufacturing across England and Wales.
The Bill says: “Upwards-only rent review clauses lead to a number of market inefficiencies, including higher rents during economic downturns, leading to lower profits for tenants and a risk of higher prices for consumers.”
Some agricultural leases will be exempt.
The legislation adds: “Following the ban, if a upwards-only rent review clause is in a new or renewal commercial lease, the requirement for rent not to decrease will be unenforceable; the new rent will be determined by whatever methodology is specified in the lease, for example in line with changes to the retail price index.
“The new rent may be higher, lower or the same as the previous rent.”
However, Fladgate law firm partner Gavin Whitney says the move introduces a significant change to the commercial property market with minimal consultation”.
Whitney adds: “Upwards-only rent reviews are a standard feature of almost every commercial lease, providing property investors with predictable income streams that underpin mortgage borrowing and long-term investment strategies and protect against inflation.
“This proposed ban risks inflicting severe unintended damage on the broader economy, which is already under strain.
“By undermining property values, it could reduce returns for everyday property owners and pension funds alike, leaving many worse off, including the government itself through lower capital gains tax and stamp duty land tax receipts.”
Mattison Public Relations managing director Nick Mattison adds: “Property landlords, including pension funds, will argue that banning upwards-only rent reviews will undermine the value of that property and make it harder to secure lending to finance new commercial property developments.”
Mattison argues the move changes “a commercial property from being a secure fixed income style investment to one where the cashflows are much more volatile.
“The retail industry has been very clear that some of the unusual features of the UK’s property market – such as upwards-only rent reviews and overly long leases – add substantially to their costs.”