A Rural Property perspective on the end of Upward-Only Rent Reviews for commercial property

The commercial property sector is preparing for a significant change in leasing practice. The English Devolution and Community Empowerment Act 2026 (“the Act”) is set to introduce a ban on UORR provisions in most new commercial leases from 2027.  The actual date of impact is still to be announced.

Traditionally, commercial property leases have usually provided for UORR, allowing rents to increase if market conditions improve but preventing them from decreasing if the market falls, which was good for investors and landlords (and their bank funders). The Government’s intention for the ban is to ensure that rents better reflect current market conditions and so to reduce the burden on tenants.

Why does this matter to Rural Landowners?

The Farm Business Tenancies (FBTs) market is not subject to the ‘convention’ of having open market reviews with UORR that prevails in other sectors.

In a Farm Business Tenancy (FBT), the default position is that rent is reviewed every three years but not more frequently, on an open market basis. Open market rent is ‘the best rent that could be obtained in the open market for the property being let (that is, the open market value of the holding)’. This means that the rent could go up or down depending on market conditions.

However, the parties can agree to exclude the statutory rent review in their FBT, provided that they comply with section 9 of the ATA 1995, and some permitted options are:-

• that there is no rent review in the FBT;
• the rent could increase by a fixed amount or percentage (if agreed from the outset);
• the rent is to be varied by reference to a specified formula (provided that this does not preclude a reduction in rent);
• the rent could be reviewed by an independent expert whose decision is final.

Agricultural landlords are therefore generally more attuned to flexible rent review mechanisms than many commercial property owners.

However, many modern rural estates have diversified beyond traditional farming and include properties such as:

• Farm shops
• Cafés and hospitality businesses
• Workshops and industrial units
• Office accommodation
• Storage facilities

New leases of these properties may be affected by the new legislation if they would ordinarily include “upwards-only” rent reviews.  Until the Act comes into force, UORR can still be included in new leases, but if you are entering into an option for a lease, or a conditional agreement for lease, the situation is more complicated, and you should consult with your lawyers.

Leases (and those to be granted under unconditional Agreements for Lease) including UORR that are in place before the ban comes into force, are not affected.

What Alternatives are available?

The ban does not prevent all forms of rental growth. Landlords can still use various mechanisms, including:

• Open market rent review, but floating up or down, as the market dictates;
• Stepped rents, where increases are agreed from the outset;
• Fixed percentage increases; and
• Index-linked reviews, provided that they are not drafted on an upward-only basis.

These choices can still provide landlords with a degree of certainty and protection against inflation.  Tenants may find that a move to (say) inflation-linked indexed rents may see rent go up when the market is weak and an open market rent (even if upwards only) might otherwise not, so the government’s push to ban UORR may inadvertently see tenants made worse off.

What should Landowners be doing?

Although the changes are not expected to take effect until 2027, landlords should begin considering how the reforms may affect future lettings of diversified-use spaces. FBTs already permit fixed stepped rents, or prevailing market rents (up or down), and so letting habits will be generally unaffected.

Key areas for review, to consider whether to make a change and, if so, to what, include:

• Heads of terms;
• Lease precedents;
• Renewal provisions;
• Estate management strategies and policies;
• Valuation assumptions; and
• Lending arrangements, if they have been based upon minimum anticipated rents.

Landowners planning new lettings may also wish to consider whether using the higher of two alternative ‘floating’ rent review mechanisms (which is, so far, permitted) should be incorporated into their standard documentation.

Looking Ahead

Whilst the agricultural sector is already accustomed to FBT rents freely reflecting market conditions, diversified rural estates may face more significant changes. Landowners should ensure that they understand how the reforms could affect their commercial property portfolios and seek advice when negotiating new leases.

For further advice on the impact of these reforms on agricultural land, rural estates or commercial property portfolios, please contact Emma Wallace at: emma.wallace@fsp-law.com or please contact our Agriculture & Rural land Team.