The government’s decision to ban upwards-only rent reviews (UORR) in commercial leases has been met with surprise and criticism from across the property industry.

The change was last proposed by Blair’s government 25 years ago

The unexpected proposal was included in housing secretary Angela Rayner’s English Devolution and Community Empowerment Bill, introduced to the Commons late last week.

If it becomes law, the ban will apply to all new business tenancies including offices, retail, logistics and data centre leases, but won’t apply retrospectively.

The government’s statement said UORR clauses “pit landlords against businesses and can make rents unaffordable and cause shops to shut”.

It said the reform was intended to ensure that rent review mechanisms reflect market conditions and would help to keep small businesses running and tackle the blight of vacant high streets.

Upward-only rent review clauses are standard features in most commercial leases, meaning rents can only rise or remain the same. The change would mean landlords need to either agree fixed rents, or introduce a review clause that allows rents to fall as well as increase.

British Property Federation chief executive Melanie Leech slammed the move as a risk to “investor confidence at a time when development viability is already seriously challenged”.

She added: “Interference in long-established commercial leasing arrangements without any prior consultation or warning has no place in the Devolution Bill.”

“Unfortunately, this is another example of a government getting mired in detailed market issues, rather than focusing on the big picture of enabling and empowering local public and private stakeholders, including property owners and their customers, to work together to drive economic growth and create thriving town centres.”

The move caught many off guard. Gavin Whitney, partner at law firm Fladgate, said the government had “quietly introduced a significant change to the commercial property market with minimal consultation”.

Whitney said the “hidden” proposal would risk undermining property values, reducing returns for property owners and pension funds, and inflicting “severe unintended damage on the broader economy”.

Scott Goldstein, partner at law firm Payne Hicks Beach, said the proposals “seem to have come from nowhere”.

He added: “Although it will doubtless give some commercial tenants cause to celebrate, it is concerning that the proposal appears to have been developed in isolation from the work that the Law Commission is doing to amend the 1954 Act.”

Government says the move will help small businesses and help tackle high street vacancies

A similar ban proposed 25 years ago by then prime minister Tony Blair’s Labour government was watered down, resulting instead in non-mandatory provisions in the RICS code.

Steven Turner, partner in professional services at property adviser Rapleys, said his main concern was that the sector had not been consulted, “which raises questions as to why this is being pushed through so quickly”.

He added: “There may be unintended consequences that haven’t explored fully the impact on commercial property at a time when business rates, National Insurance increases, MEES, real living wage and other costs are also being factored in.”

Whitney said: “Although UORRs have their critics, the market has shown, particularly during Covid, that it can adjust when rising rents conflict with declining tenant incomes. Implementing a broad legislative ban now feels excessive.

“We hope the government widely consults on this proposal to consider all viewpoints, as further damage to UK plc at a time when the country can least afford it should be avoided.”

The bill is only a proposal at this stage and will require considerable parliamentary time to pass.

Law firms including BCLP are predicting extensive lobbying against the proposal on behalf of the property industry as the bill is debated by parliament, while law firm Herbert Smith Freehills said there was a strong possibility of legal challenges.