Concern over govt plan to scrap upward-only rent reviews

The move, set out in the devolution bill published yesterday, will give more power to tenants and is aimed at revitalising the high street.

Clauses in commercial leases stipulating rents can only go up not down are to be scrapped.

The English Devolution and Community Empowerment Bill was published yesterday ushering in what the government has described “a new dawn of regional power”.

It includes commitments to role out devolution nationally through the creation of strategic authorities like the ones already established in Liverpool City Region and Greater Manchester.

The bill also aims to hand power to local communities, giving them a voice on issues that affect them.

As part of this, the government wants to ban upward only rent reviews to empower small business and protect the high street.

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

Scrapping UORR will “keep small businesses running, boost local economies and job opportunities, and help end the blight of vacant high streets”, according to government.

The move is likely to upset commercial landlords and has been criticised by BPF chief executive Melanie Leech who described it as meddling.

“Interference in long-established commercial leasing arrangements without any prior consultation or warning has no place in the bill,” she said.

“Unfortunately this is another example of the 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.”

Chris Cheap, principal and managing director of transactions at Avison Young, said the measures could stop the recovery of the investment market it its tracks.

“At best the plans to ban UORRs can be described as well intended but the lack of consultation around impact means further uncertainty for an investment market that is only just showing signs of falling back in love with commercial property.

“This said indexation without cap could present more risk for occupiers in high inflationary environments and careful navigation is still required to protect positions.”

He added: “The Consumer and the Retail Price indexes are the best we have but far from perfect because of the range of commodities and services they sample and how they relate to property markets. The sector must be up for change to reflect investor, and occupier needs but equally the consequences of change have to be thought through to achieve a solution that provides wider economic growth via investment and development markets.”

Graham Aitkinhead, director at Sixteen Real Estate, said the proposed reform had come as a surprise but that its impact might not be fatal.

“Clearly, owners will be concerned about the possible impact on rental income, but this must be balanced with the need for greater flexibility for occupiers.

“The trend towards shorter leases in the retail market has already led to a reduction in the number of upward only rent reviews so any reform will have a limited impact in these sectors.”

Upward only rent reviews were banned in new leases in Ireland in 2010.