The End of Upward-Only Rent Reviews

How reform of Leases in England could reshape the UK Commercial Property Market

The proposed ban on upward-only rent reviews (UORRs) under the English Devolution and Community Empowerment Act 2026 is, at first sight, an English leasing reform. In reality, it is likely to have implications well beyond England. Although the Act does not apply to the rest of the UK (rUK), the commercial property market does not operate neatly within jurisdictional silos. Investors, lenders, developers and larger occupiers generally assess risk, pricing and lease structures on a UK-wide basis.

That is why the more interesting question is not whether the legislation applies to rUK. It does not. The more important question is how far a change in English leasing law is likely to influence property valuations, investor expectations, lending terms, lease negotiations and development decisions across the wider UK market, including Scotland.

In my view, the implications are potentially significant. A ban on UORRs would not simply alter the drafting of rent review provisions. It would change the allocation of downside market risk between landlord and tenant and, indirectly, between owners, lenders and other capital providers. It would also accelerate a broader trend already visible across several sectors: the move away from treating commercial real estate income as bond-like and toward viewing it as more operational, more market-sensitive and more dependent on occupational fundamentals.

Why UORRs matter beyond lease drafting

Historically, UORRs have underpinned the traditional institutional lease model by providing landlords and their funders with a measure of protection against cyclical rental decline.

That has had three important consequences.

Firstly, UORRs have helped support the perception of commercial property as a relatively stable income-producing asset class. Even where the letting market softened, the passing rent often could not be reduced at review.

Secondly, they have enhanced valuation certainty. A lease with a strong tenant covenant, long-term and upward-only rent review structure has historically been capable of supporting tighter yields than a lease where rent could move in either direction.

Thirdly, UORRs have assisted debt and development underwriting. Lenders and investors have often taken comfort not only from the tenant and the term of the lease, but also from the structural inability of rent to fall on review.

If that protection is removed, the result is not simply a more tenant-friendly lease. It is a shift in how income risk is measured and priced. Property income becomes less contractual and more exposed to real market conditions. That, in turn, pushes greater focus onto actual occupier demand, reletting prospects, building quality, ESG performance, capex requirements and the depth of the local market.

Why the effects are likely to extend into Scotland

Although the legislation is English only, there are good reasons to expect significant spillover into rUK.

UK-wide capital allocation

Most institutional investors, UK clearing banks, debt funds and private real estate lenders assess property risk on a portfolio or sector basis across the UK. They may recognise legal differences between jurisdictions, but they do not treat England as an entirely separate market for pricing purposes. If English long-income assets are repriced because rent review protection is reduced, Scottish assets (or those located elsewhere within rUK. may also be assessed against revised benchmarks.

Occupier expectations

Larger occupiers with estates in both England and rUK are increasingly likely to seek consistency. If English leases cannot include UORRs, tenants may be less willing to accept them as a default position in Scotland, at least in sectors where institutional landlords and national occupiers dominate.

Market precedent and documentation

In practice, many landlords, developers and lenders prefer as much consistency as possible across their UK portfolios. Once English precedent moves away from UORRs, that style of drafting is likely to influence lease negotiations in rUK, particularly in prime and institutionally owned assets.

Lender and valuer behaviour

Even where a Scottish lease still contains a UORR, lenders and valuers may begin to place less weight on that provision if wider market practice is shifting. A contractual mechanism that remains legally enforceable may no longer deliver the same valuation premium if occupier resistance increases or if the market starts to assume more flexible review structures as standard.

The likely result is not automatic legal convergence, but commercial convergence in parts of the market. Scottish law may remain unchanged, but the commercial environment in which Scottish leases are negotiated will still move.

Retail: further confirmation that the old model has already weakened

Retail is perhaps the sector where the legal reform is least likely to produce an immediate shock. Much of the retail market had already moved away from pure institutional UORR-based leasing as part of the rise of online shopping and the shift from bricks and mortar to multi-channel retail.

Following a litany of CVAs, restructurings, COVID disruption and widespread pressure on legacy rental levels, many retail landlords have already accepted a more flexible and operationally driven approach to income.

A statutory ban in England would therefore reinforce rather than fundamentally transform existing market direction. We are likely to see continued emphasis on:

• Turnover rents;
• Base rent plus turnover top-up structures;
• Shorter lease terms;
• More frequent review or reset mechanics; and
• Greater alignment between rent and trading performance.

For investors, the principal consequence is that retail income becomes even more management-intensive and less obviously bond-like. Prime shopping centres, retail warehousing and well-let convenience-led schemes may continue to attract capital, but secondary high street and weaker secondary retail assets are likely to feel further pressure. The removal of structural rent protection would widen the distinction between assets driven by real occupational strength and those dependent on historic lease terms.

For occupiers, this is broadly positive in the sense that it offers greater downside protection and a stronger negotiating position. However, landlords are likely to look for compensation elsewhere, for example in stronger reporting obligations, tighter controls on alienation and more robust trading covenants in turnover-based structures.

The practical effect is likely to be most visible in institutional and larger retail assets. Smaller local retail holdings may continue to use traditional review structures for longer, but broader market expectations will continue to shift.

Industrial and logistics: still the strongest growth sector, but less structurally protected

Industrial and logistics is likely to be one of the most important sectors affected. That is not because the sector is weak; on the contrary, it is because so much of its recent attractiveness has been built on a combination of occupational growth and perceived structural income resilience.

The simplistic response is that if rents are rising strongly, UORRs matter less. There is some truth in that, but it overlooks the real function of UORRs: they matter most when the market turns. Their value lies in protecting landlords and funders against the possibility that growth stalls, plateaus or reverses.

In logistics and prime industrial, the ban is therefore likely to reduce the extent to which future rental growth is treated as almost structurally embedded. Growth may still occur, but it becomes more market-driven and less contractually underpinned.

The market response is unlikely to be an abandonment of longer leases. More likely is a move towards alternative review mechanics, such as:

• upward and downward open market reviews;
• CPI-linked reviews with collars and caps;
• stepped rents, subject to the final scope of any anti-avoidance provisions; and
• more bespoke review mechanisms for build-to-suit or single-occupier assets.

For investors, prime logistics should remain compelling, but underwriting will probably become more disciplined. Covenant strength, lease expiry profile, location quality and reletting risk will assume even greater importance. Prime assets with genuine supply-constrained fundamentals may continue to perform strongly, but secondary and less well-located industrial stock is likely to see greater scrutiny.

For occupiers, there is a meaningful benefit in obtaining downside protection against adverse market conditions. That said, landlords may seek to recover some of that value through higher initial rents, reduced incentive packages or stronger lease covenant requirements.

In Scotland, this is one of the sectors where market spillover is most likely to be felt. Prime logistics in the Central Belt and larger institutional industrial portfolios are likely to be influenced by English market practice, even though the Scottish legal position remains unchanged.

Offices: the greatest pressure point for repricing and obsolescence

Offices may well be the sector where the removal of UORRs has the most profound consequences. This is because the office market is already contending with structural uncertainty arising from hybrid working, changing space requirements, a sharp distinction between prime and secondary stock, and rising ESG and refurbishment expectations.

In that environment, UORRs have remained one of the few contractual devices capable of preserving some degree of income certainty for landlords. A ban would weaken that support at the same time as wider occupational demand remains more selective than before.

Prime office assets with strong sustainability credentials, excellent location, high amenity content and demonstrable occupational demand should remain relatively resilient. Investors may still accept rental growth assumptions for those assets, particularly where there is clear evidence of supply constraints in prime sub-markets.

The more serious issue is secondary office stock. Here, values are already under pressure from capital expenditure requirements, uncertain reletting prospects and growing competition from superior buildings. If rent on review can also move downwards, then the security of term income diminishes further. That is likely to accelerate value polarisation, refinancing pressure and, in some cases, alternative-use analysis or redevelopment.

For lenders, the office sector is where a ban on UORRs could most visibly feed into reduced leverage, tighter covenant packages and increased focus on capex reserves and sponsor support. The market is likely to become even less forgiving of older stock that lacks a credible refurbishment or repositioning strategy.

In Scotland, this issue is particularly relevant in Edinburgh and Glasgow. Prime stock should continue to attract demand, but secondary office assets may face sharper repricing. Even if Scottish leases remain capable of including UORRs, the broader valuation framework may shift in a way that reduces the practical comfort those clauses once provided.

Hospitality and leisure: less disruption because income is already more operational

Hospitality and leisure are less likely to experience the same degree of structural disruption because many assets in this sector already involve income models that are operationally driven. Hotels, restaurants, pubs and other leisure assets often use turnover-based arrangements, hybrid rent structures or management agreements. In that sense, the sector is already accustomed to income that reflects performance.

That does not mean there will be no effect. In cases where fixed base rent remains important, landlords may seek alternative protections such as stronger minimum guaranteed rents, improved information rights, parent company support or tighter controls around trading obligations. Lenders may also continue to price hospitality risk more conservatively, but that is already a feature of the asset class.

In Scotland, the market impact is likely to be relatively limited in legal terms, but it may reinforce a continued shift toward analysing these assets by reference to operator performance and business resilience rather than by reference to traditional lease certainty alone.

Development pipelines: perhaps the most important consequence

The most underappreciated effect of a ban on UORRs may be on development viability. The reason is straightforward: many development appraisals, particularly those involving pre-lets, forward funding or long-income exits, are built on assumptions about the durability and growth profile of rental cash flow.

A traditional pre-let development funding model has often relied on a familiar combination:

• A strong occupational covenant;
• A long lease term;
• A clear rent review profile;
• A relatively straightforward investment exit story; and
• Debt underwritten against secure future income.

Remove or weaken one of those elements and the economics become more challenging. In practical terms, that may mean:

• Higher target rents at the outset;
• Greater lender focus on covenant quality and lease structure;
• More conservative residual valuations;
• Reduced appetite for speculative schemes in weaker locations or sectors; and
• A stronger preference for phased development or pre-commitment before construction starts.

Speculative development is affected indirectly but materially. Even where there is no tenant in place at commencement, the completed building’s expected investment value depends on lease structures the market is prepared to pay for. If the stabilised asset is likely to generate less structurally protected income, then exit yield assumptions may soften, and residual land values may reduce.

This has implications across logistics, offices and mixed-use schemes. Prime, supply-constrained sectors may continue to support development, but marginal schemes become harder to justify.

In rUK this matters because development finance and exit pricing are not insulated by jurisdiction. A Scottish scheme may still be benchmarked against UK-wide income expectations and investment pricing. If English long-income development is repriced, Scottish schemes may not escape corresponding pressure.

Real estate finance: more conservative underwriting and more bespoke structures

A ban on UORRs would quickly flow through to real estate finance.

From a valuation standpoint, the market is likely to rely more heavily on discounted cash flow analysis and less on assumptions that the passing rent will remain protected against downward movement. Valuers and lenders will need to model more realistic downside scenarios, including:

• Possible rent reduction at review;
• Slower future rental growth;
• Greater void and incentive assumptions;
• Lease renewal uncertainty; and
• Capex exposure where asset quality is under pressure.

Debt sizing is therefore likely to become more conservative for sectors and assets where cash flow is more vulnerable to market conditions. We may see:

• Lower loan-to-value ratios;
• Tighter debt service and interest cover tests;
• Wider differentiation in pricing between prime and secondary assets;
• More negotiation around permitted leasing parameters in loan documents; and
• Greater use of reserve accounts, cash traps and sponsor support arrangements.

Development finance is also likely to become more selective. Lenders may place stronger emphasis on pre-lets, covenant quality, lease form and practical evidence that the completed asset will still support refinance or investment sale at stabilisation.

There may also be growth in private finance, where alternative lenders are willing to finance more complex or transitional assets, albeit at a higher cost of capital. That, however, reinforces the point: if risk is being repriced, the development and investment market becomes more selective.

Can the market simply replace UORRs with something else?

The market will almost certainly try to replicate some of the old economic effect through alternative drafting and pricing mechanisms. Possible responses include:

• Higher initial headline rents;
• Stepped rent increases;
• CPI-linked reviews;
• Collars and caps;
• Turnover top-up arrangements;
• Shorter incentives; and
• Stronger tenant covenant packages.

Whether those mechanisms are available in full will depend on the final legislative drafting and any anti-avoidance provisions. Even where they are available, however, they are unlikely to restore the same simplicity or valuation clarity that traditional UORRs offered.

That matters because the old institutional lease model was not just pro-landlord; it was also standardised and easy to underwrite. A more bespoke, negotiated and market-sensitive review landscape may be fairer in some respects, but it is also more complex and less uniform.

What is likely to happen in practice in rUK?

The market is unlikely to respond uniformly.

The sectors and assets most likely to shift toward more flexible rent review structures are:

• Prime institutional offices;
• Prime industrial and logistics assets;
• Larger UK portfolio holdings;
• Transactions involving national occupiers; and
• Assets where debt and exit pricing are heavily influenced by UK-wide capital markets.

The areas more likely to retain traditional UORRs for longer include:

• Smaller local investment properties;
• Certain secondary industrial or mixed-use assets in private ownership;
• Less institutional retail assets; and
• Transactions where bargaining power and local custom remain stronger than portfolio standardisation.

So the most realistic prediction is selective spillover rather than complete convergence. Scottish law (and rUK more widely) may continue to permit UORRs, but they may no longer be treated as the unquestioned default.

Conclusion

The proposed English ban on upward-only rent goes to the core of how commercial property cash flows are allocated, valued and financed. It does not simply improve tenant flexibility; it redistributes downside risk in a way that affects landlords, lenders, developers and investors.

The implications will vary by sector:

• Retail will mostly see an acceleration of trends already well underway;
• Industrial and logistics are likely to remain attractive, but with less unquestioned income defensiveness;
• Offices, especially secondary stock, may face the most acute repricing and refinancing pressure;
• Hospitality and leisure are likely to adapt more naturally given their already operational income models.

For Scotland, the key point is that legal non-applicability does not mean commercial irrelevance. UK-wide capital, UK-wide occupiers and UK-wide underwriting standards mean that Scotland is unlikely to remain untouched. The real spillover will not be statutory; it will be financial, behavioural and precedential.

In practical terms, investors, developers, landlords and lenders active in the Scottish market should start underwriting for a future in which upward-only rent reviews are no longer assumed to be the default benchmark, even where they remain legally available.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.