By Adam Rock, head of Innes England’s Birmingham office and Tim Ford, a director in the firm’s professional services team.

Despite protests from the commercial property industry, upward-only rent reviews (UORR) are soon to be consigned to history.

Outlawed in the newly published English Devolution and Community Empowerment Act, rent negotiations going forward will look very different.

The ban, which is expected to come in to force some time in 2027/28, was intended to assist ailing High Street shops, but applies to all new commercial tenancies.

Whilst over-rented shops were a major issue for some retailers a decade or so ago – as online sales and ailing economic conditions ate into their bottom line – landlords have since responded by providing shorter leases, with rents on expiry reflecting market rates.

The government therefore appears to be shutting the stable door after the horse has bolted. Unfortunately, it’s also dragging industrial, office and leisure landlords and occupiers to the party.

So, what will be the – likely unintended – consequences?

For landlords and investors, whether that’s institutional, private or pension fund, the shift affects income certainty and potentially lowers capital values. Lenders too will need to adapt their traditional underwriting models as banking covenants and loan-to-value calculations have historically assumed upward-only rental growth.

For tenants, the new law is being presented as a win. The reality is more nuanced, however. Landlords may be forced to raise headline rents, for instance, to mitigate against their inability to raise rents further down the line. Furthermore, while UORR may be off the table, indexation or stepped rents remain an option.

Shorter leases look inevitable, but these don’t always suit a tenant – for example in the hospitality, pharma, medical science, intensive logistics and specialist manufacturing sectors, where investment in fit-out or machinery is required and occupiers like to amortise their investment over a longer period. They may also need a rent-free period or fit-out contribution to ease cashflow and make acquisitions viable, but these are likely to disappear as a result of the

new legislation, unless tenants agree fixed or indexed rents which perversely risk them paying over market levels in the future – precisely the issue the Government sought to address!

For the commercial property sector as a whole, a dent to investor confidence – already buffeted by local and global headwinds – seems inevitable. New stock will need to be priced accordingly and some investors will look to other markets to deliver the income profiles they need. However, it would be wrong to assume the effect will be the same as in Northern Ireland, where similar measures were introduced in 2010, resulting in an exodus of investors. Then, investors had easy alternate markets in mainland UK and Eire to move capital to, but now they will have to look to international markets or outside property which will likely be a step too far for most.

Despite the lack of industry consultation and parliamentary scrutiny to date – the ban was debated for just 40 minutes in the House of Lords – the government has undertaken to engage with the commercial property sector on implementation detail, including index-linked caps and collars, prior to the law coming into effect in 2027/28. We hope this will be a more meaningful engagement, but we’re not holding our breath.