The proposed ban on upward-only rent hikes on commercial property means landlords will need to rely on alternative rent review mechanisms, such as linking increases to an inflation index like CPI or using turnover rents. However, these reviews can’t be “upwards‑only,” so rents could potentially decrease. Inflation‑linked reviews currently include a cap and collar to set minimum and maximum annual changes, but minimum increases - collars - would no longer be permitted, allowing rents to fall.

There’s a general trend towards shorter leases but reducing lease terms is unlikely to benefit landlords. Where a lease has security of tenure under the Landlord and Tenant Act 1954, any renewal will be at a market rent. Where it doesn’t have security, the parties will negotiate a new open‑market rent. In either scenario, landlords are not insulated from falling market rents.

Uncertainty

The proposed changes – part of the English Devolution and Community Empowerment Bill - will create uncertainty, and there will inevitably be a period of adjustment while the market resets. Differences between sectors and property quality may become more pronounced. For some assets, landlords might attempt to negotiate higher initial rents to compensate for the risk of a downward review, while inflation‑linked reviews are likely to become more common, and turnover rents may be increasingly used, possibly alongside landlord break clauses triggered by falling turnover.

All these approaches represent a shift away from rents set purely by market value, and the removal of the guarantee that income won’t fall (assuming the tenant remains solvent) could lead to reduced capital values in some asset classes. The long‑term impact is harder to predict; however, the market will almost certainly adapt over time, as it did after the introduction of VAT on property and the end of privity of estate.

Apply

The proposed changes will apply only to new leases and lease renewals completed after the legislation comes into force in 2027–2028, so landlords might want to bring forward lease renewal negotiations so that new leases are completed in 2026 rather than the following year. They should also review their portfolios realistically and assess the type and quality of the properties they hold, to develop strategies suited to each sector.

For prime assets, it may be possible to negotiate higher initial rents or rely on turnover rents supported by a CPI‑linked base rent, potentially combined with a break clause if turnover drops below a threshold. For other properties, a straightforward inflation‑linked review, whether annual or every five years - may be more appropriate.‍

Richard James is head of commercial property at Taylor Rose law firm.

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