Upwards only rent reviews – where are we now?

The measures, which we examined in our previous article, are contained in the draft English Devolution and Community Empowerment Bill. Since then, the proposals have been considered in the House of Commons, received their third reading on 25 November, and were passed. They have now moved on to the House of Lords, with the second reading scheduled for 8 December.

Have the measures changed?

The proposed legislation has not fundamentally changed, but the following revisions were made during the draft Bill’s reading and report stage in the House of Commons:

• Clarification on Occupation Requirement

The government has clarified that occupation of premises will not be a requirement for the ban to apply. This will mean that superior leases will be caught, even though the superior tenant does not occupy the premises for the purposes of a business. In other words, there will be parity between headleases and occupational leases and it will not be possible for a situation to arise where an upwards-only rent review is effective in a new headlease, but not further down the lease chain.

• Existing provisions relating to sub-lettings in scope

If existing leases (or agreements for leases) include provisions which require a tenant to include upwards-only rent reviews in any sub-lettings, these will not be effective once the new legislation is in force.  A superior landlord will not be able to require a tenant to grant a sub-lease which would breach the ban.  This might mean that superior landlords become more reluctant to consent to sub-lettings and questions will inevitably arise as to whether this could be considered a reasonable ground for a superior landlord to refuse consent to subletting. Landlords of existing leases are likely to object to losing an element of control which has already been negotiated into an existing lease.

• Tenants’ Contractual Renewal Rights

Tenants’ contractual rights to renew a lease will be within the scope of the ban. The draft legislation already extended to landlords’ put options and lease renewals and has been further widened to include situations where tenants have the contractual right to call for a renewal lease.

These amendments reflect some observations that commentators had made about the detail of the Bill, but do not resolve more intrinsic objections. For example, the British Property Federation warns that the legislation “risks investor confidence at a time when development viability is already seriously challenged”.

For now, the government’s plans appear to be progressing rapidly towards the statute book, and the market will be watching the ongoing Parliamentary process with interest.