Upward-Only Review clauses have been a standard inclusion in commercial leases for decades. These clauses have the effect that, when rent is reviewed, the sum stays the same or increases, but it does not fall – even if the review calculation or the market produces a sum that is below what the tenant currently pays. The Government has legislated to change this position, although the new regime is not yet in force and details need to be clarified.
The English Devolution and Community Empowerment Act 2026 introduces provisions that prevent upward-only clauses from taking effect in affected leases. Once commenced, the provisions will apply to most new business tenancies where the rent is not determinable at the outset of the lease. This will include open market rent reviews, index-linked reviews and turnover-based reviews; however, fixed or stepped rent increases are expected to remain unaffected.
Why does this matter to charities?
Charities interact with the commercial property market in a number of different ways. Most common is likely to be as a tenant of offices, shops, community hubs or operational facilities. Where a charity is a tenant, the reforms could be beneficial, providing greater protection against paying a rent that is significantly above the market level. The new rules would allow rents to decrease with the market or inflation as well as increase.
However, charities should not assume that existing leases will benefit. The legislation is aimed primarily at new arrangements. The provisions do not affect existing leases or, generally speaking, those entered into pursuant to agreements for lease that were exchanged prior to the commencement of the provisions. (Note however that there are differing rules for those agreements that relate to renewal leases).
What about charities that are landlords?
Charities that own investment property and rely on rental income to fund charitable activities will be less welcoming of the change. It may create greater uncertainty around future income streams and portfolio valuations. Charities with substantial commercial property portfolios should consider reviewing their long-term financial planning assumptions and strategy in advance of the commencement of the provisions.
What happens next?
Although the legislation is now on the statute book, the upward-only rent review provisions have not yet been brought into force. The government has indicated that commencement will follow further consultation and secondary legislation with no fixed implementation date but many commentators expect this to be in 2027 or even 2028. Until then, charities considering new leasing arrangements should continue to monitor developments and take advice on how the forthcoming regime may affect their particular circumstances.
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