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Companies renting offices, shops or warehouses will be able to negotiate cheaper deals with landlords for the first time under government plans to end the historic system of “upward-only rent reviews” for new leases in England and Wales.
The English Devolution and Community Empowerment Bill published on Thursday includes a provision to ban clauses in commercial property leases that say rents cannot go down when a rental agreement is renewed.
The clauses have been standard in Britain’s property market for decades, giving security to commercial landlords but disadvantaging tenants who can find themselves stuck paying above-market rents.
The changes will not affect existing contracts but will make it illegal to introduce the upward-only clauses in a new agreement between landlord and tenants.
Landlords will have to choose between offering fixed rents during the agreement or having a review clause that allows rents to fall as well as go up.
The Labour government said upward-only rent reviews “pit landlords against businesses and can make rents unaffordable and cause shops to shut” and said the change would help to keep small businesses running.
“It will help end the blight of vacant high streets and the unacceptable antisocial behaviour that comes with them,” it added.
The policy change came in a bill that is primarily concerned with increasing devolution for many areas of England and was not mentioned in Labour’s election manifesto ahead of the general election a year ago.
A quarter of a century ago — in Labour’s 2001 election manifesto — the party mentioned upward-only rent reviews, calling them a “source of grievance”, but Sir Tony Blair’s government did not scrap the system.
Craig Beaumont, executive director at the Federation of Small Businesses, said: “A typical small firm in premises has faced rising rents and rates among all the other costs like NICs, so this change should bring some relief for small businesses negotiating their next lease.”
Melanie Leech, chief executive of the British Property Federation, criticised the move, saying: “Interference in long-established commercial leasing arrangements without any prior consultation or warning has no place in the Devolution Bill.”
She added that the government was “getting mired in detailed market issues” rather than “focusing on the big picture of enabling and empowering local public and private stakeholders . . . to work together to drive economic growth and create thriving town centres”.
Ministers hope that the change will tackle the problem of empty high street shops by pushing down average commercial rents across the country.
The government last year introduced new “high street rental auction” powers allowing councils to auction off leases for high street lots that have been empty for long periods.
Jim McMahon, local government minister, said: “Small businesses and community groups make an incredible contribution to our cities, towns and villages. But in far too many areas they are being forced off the high street by spiralling rents — leaving empty lots behind them.
“Our bill will ban unfair upward-only rental clauses in commercial contracts . . . helping local high streets become the beating hearts of our communities once again, delivering on the plan for change.”
