Publication
Publication
The English Devolution and Community Empowerment Act 2026 (the “Act”) is one of the most significant pieces of legislation to impact the commercial property market in recent times – it contains the statutory provisions which will amend the Landlord and Tenant Act 1954 to give effect to the unexpected, but highly debated, ban on upwards-only rent reviews in commercial leases. The Act received Royal Assent on 29 April 2026 – sooner than anticipated – and will come into force when the Government introduces secondary legislation to implement its provisions. In this article, we explore the implications of the Act and what stakeholders should be doing to prepare.
In July 2025, the Government took the market by surprise by including a proposed ban on upwards-only rent reviews in business tenancies in the English Devolution and Community Empowerment Bill (the “Bill”). The stated aim was to help revitalise high streets and protect tenants against paying inflated rents during market downturns. Though well-intentioned, the proposal raised concerns about unsettling investor confidence, undermining the predictability of income streams and eroding the principle of freedom of contract. Many also questioned whether the ban would actually achieve its goal of supporting high streets and “ending the blight” of vacant stores.
We considered the proposed ban, as it stood then, in our previous article on the Bill: Upwards and outwards: the proposed ban on upwards-only rent reviews for commercial leases.
Fast forward nine months: following extensive legislative scrutiny, the Bill has received Royal Assent and become the Act… but what has changed?
The underlying nature of the ban has remained. Broadly, where rent under a rent review is to be determined by reference to a reference amount (such as market rent, or an index (such as RPI)), and the rent review terms would, or could, result in the new rent differing from that reference amount, the legislation intervenes wherever the outcome would be a new rent higher than the reference amount. In such cases, the legislation requires the new rent to instead be set at the reference amount. The same principle applies to the initial rent on renewal leases.
However, the scope has now broadened in three important ways:
As originally drafted, the main ban on upwards-only rent reviews applied to new commercial leases (or variations to existing leases) entered into after the relevant provisions of the Act came into force. An exception applied where the new lease (or variation) had been granted pursuant to an arrangement - such as an agreement for lease or option - entered into before the relevant provisions came into force (a “pre-commencement arrangement”). Together, these provisions ensured that the Act would not apply retrospectively.
The original Bill also contained a separate provision addressing a potential gap in relation to renewals: specifically, it extended the ban to cover the initial rent payable under put options, being arrangements under which a tenant can be required by the landlord to take a new tenancy. Without this, the initial rent on a renewal lease could otherwise have been set at a level that effectively circumvented the ban. However, this additional provision was limited to put options only, leaving call options (under which the tenant can require the grant of a new lease) outside its scope.
Two significant changes have been made in the Act. Firstly, the scope of this renewal provision has been broadened so that all “tenancy renewal arrangements” are now caught - meaning any arrangement under which an existing tenant can require the grant of a new lease, or can be required to take one, including put and call options.
Secondly, a retrospective element has been introduced specifically in relation to tenancy renewal arrangements: leases granted pursuant to any such arrangement entered into on or after 17 March 2026 will be caught by the ban and will not benefit from the pre-commencement arrangement exception. This retrospective element does not affect agreements for lease with new tenants or other pre-commencement arrangements - it is targeted solely at renewal arrangements. Any such arrangements entered into on or after that date which contain provisions that fall foul of the ban - whether in relation to the initial rent and/or any rent review in the renewal lease - will be ineffective insofar as the upwards-only element is concerned.
Concerns have been raised about this retrospective element and the potential turbulence it could cause for the market. Investors had hoped that this amendment would not get off the ground. Now that it has been confirmed, landlords and tenants who have entered into such arrangements since 17 March 2026 should carefully review their position and model accordingly. Similarly, parties currently negotiating lease renewal arrangements will need to take these provisions of the Act into account, even though the ban is not yet in force.
An additional provision has been introduced regarding subletting, and its implications are more far-reaching for superior landlords than may initially appear.
Where a commercial lease (entered into before the Act takes effect, or pursuant to a pre-commencement arrangement) either requires or permits a sublease to include a rent review provision on terms that would fall foul of the ban, or would be capable of doing so, the Act does not simply strip out the upwards-only floor from the sublease terms required or permitted by the superior lease, leaving everything else in place.
Rather than making the minimum intervention of removing the upwards-only element, the Act disapplies entirely the mechanism by which the superior landlord can specify the particular rent review terms that must appear in any sublease. The superior tenancy has effect as if it requires the sublease to include rent review terms of any kind that would not produce the prohibited result - leaving the sublease parties free to agree an entirely different rent review mechanism from that contemplated in the superior lease - for example, switching from an open market rent review to an RPI review. The superior landlord therefore loses control not just over the upwards-only floor, but over the entire architecture of the rent review in the sublease.
This provision is intended to ensure that tenants are not inadvertently prohibited from subletting or forced into a breach of the superior lease by the operation of the ban. However, it produces a materially more disruptive outcome than a simple application of the ban would require. Investors and lenders whose underwriting assumptions are built on sublease income replicating the review structure of the superior lease should take careful note: the income profile from subletting may become considerably harder to predict and control once the ban comes into force.
There is one potential route back to control: the superior landlord and its direct tenant could agree to amend the superior lease to specify compliant sublease rent review terms. However, the tenant will have little incentive to cooperate without receiving something in return.
The drafting has therefore produced a broader shift in the balance of control than may have been strictly necessary to achieve the intended goal – and the consequences for superior landlords are likely to be more disruptive than many will have anticipated.
Additionally, the ban now encompasses not only tenancies to which Part II of the Landlord and Tenant Act 1954 applies (broadly, leases of premises occupied by a tenant for business purposes), but also tenancies to which Part II has the potential to apply (for example, where the tenant is not currently in occupation, or is in occupation but not for business purposes, yet the tenancy permits occupation for business purposes). This expands the scope to cover superior leases where the tenant has sublet (and is not, therefore, itself in occupation) or where the tenant has temporarily vacated the premises.
The legislation does not come into force immediately. General market consensus is that implementation is not expected until 2027 or 2028.
The Government has indicated that it will issue further guidance on the ban, and consult on a potential cap and collar mechanism which may provide some flexibility. The Act also gives the Secretary of State the power to provide for exceptions to the ban through regulations (which could pave the way for the scope of the ban to be narrowed) – so there is certainly more to come.
Whilst the implementing regulations and further Government guidance are awaited:
(i) existing landlords/investors should review their portfolios and consider the impact of the ban on future rent projections - this includes mapping where renewal regimes might trigger unexpected exposure under the retrospective element of the Act, and identifying existing leases where the disapplication of the superior landlord's ability to control sublease rent review terms could affect income projections. Where such exposure is identified, superior landlords should consider approaching their direct tenants to agree a variation specifying compliant sublease rent review terms, bearing in mind that tenants will have little incentive to agree without receiving something in return;
(ii) new landlords intending to enter into new leases should ensure that provisions specifying compliant sublease rent review terms are included as standard - this is the most straightforward route for superior landlords to retain control over the rent review structure throughout the lettings stack;
(iii) lenders should revisit loan repayment modelling and covenant packages, particularly where debt service has been underpinned by assumptions of upwards only rental growth - and should specifically consider where subletting income forms part of the security or covenant package, given that the rent review structure in subleases may diverge materially from that in the superior lease once the ban comes into force; and
(iv) tenants considering new leases should take advice at an early stage to ensure that lease renewals and new leases are timed, structured and documented so as to take advantage of the new provisions.
The possible consequences of the ban were explored in our previous article. We expect the market to respond with more fixed or stepped rents (giving both parties certainty over future uplifts), greater use of index-linked rents (which may be less likely to result in a downwards review, and may more closely align with market reality), and shorter lease terms with no reviews (which are already common where tenants require operational flexibility). Whilst a period of adjustment is inevitable as the market responds to the major changes on the horizon, stakeholders should ensure they are planning ahead for the new rules and keeping a close eye on further developments.
If you wish to discuss any of the issues in this article, please do not hesitate to reach out to your usual Linklaters contact.