Commercial Lease Reform 2026: What It Means for Landlords and Property Values
The commercial property landscape across England and Wales is facing one of its most significant structural changes in decades. Proposed reforms are set to abolish upward-only rent review clauses in new commercial leases — a shift that could materially affect investment strategy, asset valuation and lease structuring.
The commercial property landscape across England and Wales is facing one of its most significant structural changes in decades. Proposed reforms are set to abolish upward-only rent review clauses in new commercial leases — a shift that could materially affect investment strategy, asset valuation and lease structuring.
For landlords and investors, understanding the implications early will be critical.
## What Is Changing?
For many years, most commercial leases have included **upward-only rent review clauses**. These provisions allow rents to increase at review but never fall — even if market rents decline.
Under the proposed reforms:
* Upward-only rent reviews will be **banned in new commercial leases and renewals** once legislation comes into force.
* Rent review mechanisms will instead allow rents to move **up or down in line with open market levels**.
* Existing leases will not be affected retrospectively.
This marks a fundamental shift in how rental income is structured and forecast.
## Why Is Reform Being Introduced?
The intention behind the reform is to rebalance negotiating power between landlords and occupiers, particularly to support small businesses and high street tenants operating in fluctuating economic conditions.
While the policy aim focuses on tenant fairness and flexibility, it inevitably alters risk profiles for landlords and investors.
## The Potential Impact on Capital Values
Upward-only rent reviews have historically provided:
* Predictable income growth
* Enhanced security for lenders
* Stronger capital valuation assumptions
Allowing rents to adjust downward introduces greater income volatility. This may result in:
### 1. Reduced Income Certainty
Valuations are closely linked to projected rental income. Where downward movement is possible, surveyors and lenders may adopt more conservative assumptions.
### 2. Repricing of Risk
Investors may reassess yield expectations, particularly in secondary retail or office sectors where rental performance can fluctuate.
### 3. Lending Implications
Banks may review loan-to-value ratios and stress testing criteria where income streams are less guaranteed.
Prime, well-located assets with strong tenant covenants are likely to remain resilient. However, weaker stock may experience more noticeable valuation pressure.
## Strategic Considerations for Landlords
This reform is not a crisis — but it does require proactive planning.
### Review Lease Renewal Timing
Where leases are approaching renewal, landlords may consider progressing negotiations before implementation to preserve current review structures.
### Reassess Lease Structures
Future leases may increasingly incorporate:
* CPI-linked base rents
* Turnover-linked elements
* Fixed stepped rents
* Hybrid review mechanisms
Careful structuring will become more important than ever.
### Segment Your Portfolio
Not all assets carry equal risk. Portfolio analysis should identify:
* Assets reliant on upward-only assumptions
* Sectors exposed to rental volatility
* Opportunities to strengthen tenant covenant profiles
## What This Means for the Market
The removal of upward-only rent reviews represents a structural evolution in UK commercial leasing. While short-term valuation adjustments may occur, markets historically adapt to legislative change.
Well-advised landlords who plan early, structure intelligently, and understand their asset risk profile will remain well positioned.
## Our View at Allen Residential
Change in regulation does not remove opportunity — it reshapes it.
Professional lease negotiation, intelligent rent structuring and proactive asset management will become even more valuable in protecting income and capital growth.
If you would like guidance on how these proposed reforms may affect your commercial property portfolio, our team would be pleased to assist.
To book a call with James Allen with the view to reappraising your portfolio and its values CLICK HERE
