Simon Sherwood, real estate partner at Mills & Reeve, examines how the Government’s proposed ban on upward only rent reviews could reshape the healthcare property market. He explores what the changes mean for operators, investors and developers across the sector, and how the market may need to adapt as a long established valuation and rental model comes under pressure.
On 10 July 2025 the English Devolution and Communities Bill was introduced to Parliament. While the Bill’s broader purpose is to devolve more powers to local authorities and stimulate regional economic growth, Part 5, Clause 71 and Schedule 31 of the Bill amends the Landlord and Tenant Act 1954, inserting a new Clause 54A and Schedule 7A and 7B into the Act, “banning” upwards only rent reviews. The Bill is yet to become law and is currently at the House of Lords Committee Stage of its progress through Parliament.
The proposed changes apply to most new business tenancies (irrespective of whether they are inside or outside the security of tenure regime) that have a rent review method, making the rent unascertainable at the start of the lease (eg reviews by indexation, inflation or multiplier, open market rent reviews and turnover rent reviews).
Currently, the legislation will also capture “collars” used in rent reviews to prevent rents falling below a certain level, although commentary suggests that these may be permitted later as an exception. Stepped rents are excluded from the regime (due to being ascertainable at the outset of the lease) as well as any reviews that allow for genuine upward or downward rent adjustment.
Anti-avoidance measures are included, rendering void any rent review terms (whether within the lease or in a side agreement) that seek to preserve an upward-only mechanism. Additional anti-avoidance measures stop landlords being the only party able to trigger or progress a rent review by making any such steps exercisable by the tenant as well. It will be impossible for landlords to charge tenants top-up payments for any lost rent.
The proposed ban extends to put-options that allow parties to calculate a rent for a new lease. The legislation states that the initial rent of the new lease should be the passing rent of the “old” lease.
As currently drafted, the new proposals are not retrospective in effect and would only apply to new tenancies granted following the Bill being passed into law. It will also be possible to grant new leases with upwards only reviews if the parties entered into a previous formal contract for a new lease prior to commencement of the provisions.
What impact might this have in the healthcare real estate sector?
Given that the ban applies to all business leases, it will affect all facets of healthcare lease relationships, including in the care home sector. However, with the lack of retrospectivity in the proposed legislation, all current leasing arrangements will remain unaffected.
Landlords and investors may well now be nervous about the future impact on their portfolios, especially given the potential income volatility that the proposed ban introduces. This volatility has the potential to affect valuations, that are likely to need to be reassessed for portfolios which have historically relied on upward only clauses. It also has the potential to impact healthcare development projects, where the forecasting of future rents will be more difficult, meaning viability studies may be more cautious and conservative.
In recent years, investment into the healthcare sector, particularly in the built environment, where long-income has flowed from international funds, particularly REITs. These funds have been attracted by the stable, predictable, market/index-linked returns that the UK property market and, in particular, the healthcare sector, offers by virtue (amongst other factors) of upward only rent review mechanisms.
It now remains to be seen whether investor confidence will be affected by the change to what has been an established rent review model. True upward and downward rent review models are not unknown in the international market, a useful comparator is the Republic of Ireland, which has banned upward only rent review provisions in new commercial leases since 2010. Despite this, CBRE reported that record investment in activity in the Irish healthcare real estate sector (particularly in care homes) in 2022, at a time when operating conditions were challenging.
While, if it comes to pass, the proposed ban marks a shift from a rent review model that has underpinned UK property and healthcare structures for decades, it doesn't signal the end of investment into the sector. As the Irish model demonstrates, investment can continue to thrive under genuinely upward and downward rent review regimes if extra thought is put into structuring, realistic valuation assumptions and lease drafting, but the healthcare sector’s proven resilience and adaptability suggest it is well placed to navigate the uncertainty that may follow.
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