Ban on upward-only rent reviews will harm commercial landlords

Labour’s plan to ban upward-only rent reviews in commercial leases will cost commercial landlords billions of pounds, claims an expert.

A story in The Telegraph has former Treasury economist Martin Beck warning the government’s plan will lead to a 15% property price slump and billions of pounds of losses for commercial landlords.

Last year, the government announced, under the English Devolution and Community Empowerment Bill, that commercial landlords will be banned from adding increase-only rent review clauses to new contracts.

The clauses, which typically occur every three to five years in a lease, allow rent to either increase or remain the same at each review, but never decrease, even if market rents have fallen, and this provides landlords with stability and certainty over their income.

Proposals could knock billions of property values

Mr Beck warns the government’s proposals could hit Britain’s pension funds, which hold about £96bn in commercial property, by reducing the value of their portfolios.

He also warns that changes to rental fees charged by commercial landlords could wipe £11bn off the value of shops and offices.

Mr Beck told The Telegraph: “The government is right to want to protect small businesses from rising fixed costs, but it has overlooked a serious downside of how this policy is drafted.

“By applying a blanket ban on upward-only rent reviews across all commercial property, it risks undermining the very investment that funds town-centre regeneration, data centres and mixed-use developments.

“That could knock billions off property values, weaken pension returns and make many regeneration schemes simply stack up no longer.”

Commercial landlords will be able to offer fixed or stepped rents

As previously reported on Property118, under government proposals, instead of upward-only rent reviews, commercial landlords will be able to offer fixed or stepped rents, index-linked or turnover-based rents and market rent reviews, if they reflect both upward and downward movements.

The government has confirmed existing leases with upwards-only clauses will remain valid until the end of their term.

The government claim the ban will make commercial leasing “fairer for tenants and stimulate economic growth.”