Commercial Leasing Reform under the English Devolution and Community Empowerment Act 2026

The Government’s ban on upwards-only rent reviews represents a significant shift in the commercial leasing landscape, challenging one of the longstanding features of rent review mechanisms in England and Wales.

Current position

Rent review provisions in commercial leases are typically structured to favour income security and growth for landlords. The most common approach is the upwards-only rent review, under which rent is reviewed periodically, often by reference to open market rent, but cannot fall below the passing rent/a specified rent at the review date. The practical effect is that, even where market conditions decline, tenants do not benefit from any rent reduction. Rent will either remain unchanged or increase.

The new position 

In July 2025, the Government introduced proposals to prohibit upwards-only rent reviews in commercial leases, with the measures included in the English Devolution and Community Empowerment Bill. The English Devolution and Community Empowerment Act 2026 (the Act) subsequently received Royal Assent on 29 April 2026 with the provisions in relation to rent reviews added as new Schedules to the Landlord and Tenant Act 1954.

Although the Act is effective these Schedules are not yet in force. Once they are, they will fundamentally alter how rent reviews operate. Subject to some qualifications

• upwards-only features within rent reviews will become unenforceable;
• rent reviews will operate on both an upward and downward basis; and
• “higher of” provisions will be ineffective and must be disregarded 

For example, where a lease provides for rent to be reviewed to the higher of open market rent and the passing rent, and at review the market rent is £30,000 per annum whilst the passing rent is £35,000 per annum, the revised rent would be £30,000 per annum.

Tenants will also be given the right to trigger a rent review where these rights are not included in the lease. This will prevent landlords trying to circumvent the ban by refusing to review the rent where the rent is likely to decrease.

The legislation does not invalidate the Lease and does not in fact prohibit the inclusion of upwards-only provisions, it simply nullifies clauses that require the rent to be higher than the rent review formula would otherwise provide.

Which Leases will be affected?

The provisions will apply:

1. to both protected and “contracted out” tenancies within Part 2 of the Landlord and Tenant Act 1954 (ie leases where the tenant is in occupation for business purposes); 
2. where the tenancy provides for a review of the rent during the term but the rent is not fixed or ascertainable at the outset of the tenancy and is instead determined by a review mechanism (ie where the revised rent is calculated by reference to inflation, market rent or turnover);
3. where the tenancy contains provisions preventing rent from falling below a specified level/ that require the rent to be higher than the formula would otherwise provide; 
4. where the tenancy was granted AFTER the Schedules come into force; and
5. where the tenancy was NOT granted pursuant to a pre-commencement arrangement (UNLESS the lease is a renewal of an existing tenancy and the “tenancy renewal arrangements” were entered into after 17 March 2026).

• “Tenancy renewal arrangements” 

These are options to renew or agreements for a renewal lease with existing tenants. Reversionary Leases granted before commencement with a term starting before or after commencement are not tenancy renewal arrangements, as the lease will have already been granted. 

• Headleases/Underleases

Notwithstanding the reference to the tenant “being in occupation” for business purposes the Act will still apply to rent reviews in head leases where the head tenant has underlet the whole of the premises, so is not occupying itself. 

Subleases granted following commencement will also fall within scope even where the head lease was granted pre-commencement (subject to the exclusion for leases granted pursuant to pre-commencement arrangements).

• Statutory renewals under the Landlord and Tenant Act 1954

Existing leases which are renewed under the Landlord and Tenant Act 1954 after the date of implementation will also be caught, so a landlord who currently enjoys an upwards-only rent review will lose that benefit once the lease is renewed.

• Stepped Rents/Index Linked Rents/Turnover Rent

Leases with stepped rents agreed for the whole term at the outset will be unaffected. 

As currently drafted, Leases with rent reviews based solely on straightforward up or down indexation without any provisions preventing the rent from falling below a specified level (collars or compounding) will be permitted. Caps will also be permitted as these do not prevent the rent from falling below a minimum level. It is expected that a rent review to the higher of market rent and indexed rent will be permissible, provided neither limb is expressed to be upwards-only but formal guidance is awaited on this. 

It is not thought that the turnover element of turnover rents, where the tenant pays a basic rent plus an additional rent equal to the amount (if any) that any agreed percentage of the Tenant’s gross turnover exceeds the basic rent, will be caught (although the basic rent itself will be caught if it is subject to an upwards only review).

Transitional arrangements 

Implementation of the new provisions is unlikely to become effective until 2027 at the earliest existing leases, new leases and reversionary leases (whether the term commencement date arises before or after implementation) granted prior to commencement will remain unaffected. 

To protect against anti-avoidance measures it will however apply, in part, retrospectively to “tenancy renewal arrangements” (i.e. an option or agreement to renew entered into with the existing tenant) entered into on or after 17 March 2026. 

For example:

• Leases entered into after implementation pursuant to options to renew with existing tenants agreed on or after 17 March 2026 will be caught. 
• Leases entered into after implementation pursuant to renewal options agreed with existing tenants before 17 March 2026 will fall outside scope.
• Leases entered into before implementation pursuant to an option for a renewal lease with an existing tenant entered into after 17 March 2026 are not affected and the renewal lease can still have an upwards-only rent review during the term (but not on day one)
• Leases entered into after implementation pursuant to agreements for lease exchanged on or after 17 March 2026 (but before implementation) with new tenants will fall outside the scope of the Act, on the basis they are viewed as genuine new lettings. 
• Leases entered into after implementation pursuant to agreements for lease with existing tenants exchanged on or after 17 March 2026 will be caught.

Market impact

The prohibition on upwards-only rent reviews is likely to have a significant impact on rental income and asset value. While tenants will welcome the potential for rents to move downwards as well as upwards, the change will inevitably alter leasing dynamics.

• Landlords may respond by restructuring deals to preserve value, for example by agreeing shorter terms, pricing in higher initial rents for longer periods, introducing fixed or stepped increases, or seeking other commercial concessions. There may also be a shift towards alternative mechanisms such as index-linked reviews, particularly where downward movement is considered unlikely.

• The Act will result in a 2-tier system for a while. As well as the obvious distinction between pre and post ban leases there may be other consequences:

• • Although rent review provisions in pre-ban leases will remain unaffected such provisions may be regarded as onerous which could have a deflationary effect on rent at review (an issue for the landlord) but could also affect assignability (an issue for the tenant).

• • As underleases granted following commencement will fall within scope (subject to the possible exclusion for leases granted pursuant to permitted pre-commencement arrangements) there may be a divergence between head lease and underlease rents after implementation, if the head lease contains an upward-only rent review and requires any rent review provisions in any underlease to mirror the head lease. These requirements in the head lease will have to be disregarded, which could lead to a shortfall for the head tenant and a short fall risk for the head landlord if the head lease is forfeited. 

The underlease rents will also no longer be capable of being used as comparables for the head lease rent on review.

• From a landlord perspective, there is also likely to be a flurry of activity to agree Leases, Reversionary Leases and Agreements for Lease with new tenants before the changes take effect, to preserve the upwards only rent review provisions. 

• Well advised tenants may argue for upwards and downwards reviews now or seek additional concessions as consideration for agreeing more onerous upwards only rent reviews. 

Conclusion

Some uncertainty remains as to how these provisions will operate in practice, until further guidance is issued, and what the overall impact will be. Whilst the Government’s rationale is that upwards-only reviews have artificially inflated rents and reduced affordability, it is not yet clear whether the reforms will combat these effects. What is clear, however, is that the legislation marks a fundamental shift in how commercial rents will be structured in the future.

Contact

Moorcrofts Commercial Property Team provides legal advice to owners and occupiers of commercial property, with a particular specialism in Tenant representation as well as having extensive experience advising corporate occupiers on all aspects of leasehold acquisitions and disposals. For more information regarding Moorcrofts commercial property services, contact Julia Ferguson on: 01628 470009 or julia.ferguson@moorcrofts.com.