Introduction

2026 is shaping up to be a very significant year for UK real estate regulation. Across different asset classes, a wave of legislative change is converging at once. This article sets out the key reforms, what they mean in practice, and where sponsors and their advisers should be focusing their attention.

Upwards-only rent reviews are under threat

Within the English Devolution and Community Empowerment Bill, the government proposes to ban upwards-only rent reviews in new commercial leases. If it becomes law, the proposal would be inserted into the Landlord and Tenant Act 1954, and the proposed drafting includes anti-avoidance legislation, which will mean that, subject to certain unspecified exceptions, the proposal will capture all new leases that are occupied by a tenant for the purpose of its business.

It has long been an accepted commercial position in UK real estate that commercial leases allow for periodic upwards-only rent reviews, usually linked to an index, turnover, or the open market.

This proposal has caused significant uncertainty for investors and landlords. The guaranteed income floor of upwards-only reviews has existed for decades in valuations, lending covenants, and leveraged return models. Take that floor away, and uncertainty results around property valuations and rental income, which increases the risk of borrowers defaulting on their finance agreements.

If the Bill goes through, we anticipate that landlords and investors would try to compensate for the loss of upwards-only reviews. Deal structures will likely evolve, with landlords pushing for higher day-one rents, shorter leases with more landlord breaks, and fewer tenant incentives such as rent-free periods and fit-out contributions. Lease documents will get more complex and transaction costs will likely rise.

What the end of 'upwards-only' would mean for PE

• Acquisition: Sponsors will need to underwrite to a much wider range of rental outcomes. Assumptions that make a one-way bet on rental growth will need to contemplate reductions in rent, which may need to be factored into pricing at the outset.
• Financing: Lenders have always taken comfort from the fact that rents can only go one way under an upwards-only review. Remove that comfort, and expect tighter advance rates, shorter loan terms, demands for additional credit reserves, and possibly inadvertent defaults.
• Asset management: Bargaining power in rent reviews would shift towards tenants. We expect landlords to adjust deals to seek to mitigate the risk of a downward review. While it is unlikely that one solution will fit all assets, asset managers will need to determine the approaches that are the most suitable and beneficial to their portfolio.
• Exit: Pension funds and insurers have historically paid a premium for the income security that upwards-only reviews deliver. Without them, buyer pools could shrink and hold periods could get extended.

Renters’ Rights Act: A new regime for residential investment

Phase 1 of the Renters’ Rights Act (RRA) takes effect on 1 May 2026, and its implications for private equity residential portfolios are substantial. The key changes include:

• Abolishing assured shorthold tenancies: All tenancies will become periodic tenancies.
• Abolishing Section 21 “no fault” evictions: Landlords can terminate a tenancy agreement only for a valid legal reason, whereas a tenant could terminate the agreement at any point on two months’ notice.
• Removing the ability to include contractual rent review clauses in the tenancy agreement: Instead, to increase the rent, landlords must follow the statutory procedure within Section 13 of the Housing Act 1988. The rent can increase only annually and must be in line with the open market rent. If the tenant disagrees with the open market rent, they can appeal to the First-tier Tribunal.
• Banning rental bidding: This prevents landlords from inviting new tenants to bid in order to achieve a higher rent than the advertised price.
• Banning the landlord from accepting more than one month’s rent in advance.
• Extending the liability under the house-in-multiple-occupation (HMO) and selective licensing regimes to enable relevant authorities to hold superior landlords accountable for any failure to obtain the appropriate licence for residential lettings. Previously, authorities’ recourse was limited to pursuing direct landlords only.

Overall, the Act effects a significant shift in power to tenants, reduces landlord flexibility, raises compliance risks and management costs, and threatens profitability and income stability.

For build-to-rent and purpose-built student accommodation investors, this means income projections need revisiting. Tenants will be able to leave on two months’ notice, introducing a vacancy risk that could be difficult to model.

What the RRA’s pro-tenant provisions mean for PE

These changes touch every stage of the investment life cycle.

• Acquisition: Sponsors will need to factor in reduced income certainty and the cost of compliance when pricing residential portfolios.
• Financing: Borrowers should expect to be required to demonstrate compliance with the new Private Rented Sector Database (a new, mandatory digital register for landlords and properties in England), and finance documents will likely include compliance declarations, enhanced reserves, and additional events of default.
• Asset management: During the hold period, asset managers face a more demanding operational environment. They will be required to respond to tenants who can leave on two months’ notice, manage compliance with anti-discrimination and rent-setting rules, and maintain the records that lenders and regulators will scrutinise. Because liability under the HMO and selective licensing regimes has been extended to capture superior landlords, investors with a residential element in their portfolio will need to carefully consider the available defences under the RRA to any enforcement action brought under the licensing regime, with a view to mitigating the risk of a financial penalty.
• Exit: Prospective buyers will themselves price in regulatory risk, meaning portfolios with poor compliance histories or unresolved regulatory exposure could face material valuation discounts.

Building Safety Act: Deepening obligations

The Building Safety Act (BSA) continues to tighten its grip on higher-rise residential acquisitions. Components of the Act include:

1. Providing for a building safety levy, scheduled to become payable from October 2026. It is expected to raise £3.4 billion over 10 years by requiring residential developers to pay an additional charge as part of obtaining building control approval. For residential developments, this is a direct hit on scheme financial viability, particularly for projects planned and consented before the levy was announced.
2. Extending limitation periods under the Defective Premises Act 1972 to 30 years for dwellings completed before 28 June 2022 and 15 years for later completions. Previously, actions under this legislation were limited to six years. Developers should therefore be aware of the increased window of potential liability exposure.
3. Introducing Gateways 1, 2, and 3. These are checkpoints that a developer of a higher-risk building (a building that is at least 18 metres or seven storeys high with at least two residential units) must satisfy to demonstrate compliance with safety requirements before progressing to the next phase. The three gateways add further management and cost obligations for developers, and risk delays to projects.

What BSA obligations mean for PE

The implications run across the full deal cycle.

• Acquisition: Buyers must now undertake significant technical and legal due diligence on building safety compliance, remediation status, and historic defects. The cost of getting this wrong has increased dramatically given the extended limitation periods.
• Financing: Lenders are increasingly requiring borrowers to demonstrate full BSA compliance as a condition of drawdown, and may impose additional events of default or cash reserves to cover potential remediation costs.
• Asset management: Managing assets during the hold period means engaging with the building safety regulator, maintaining safety case reports for higher-risk buildings, and ensuring that any works carried out meet the enhanced regulatory standards. This will add to operational costs and management complexity.
• Exit: The building safety levy adds a direct cost to disposals, and any residual remediation exposure or unresolved building safety issues will be heavily scrutinised by purchasers and their lenders, risking price chips or deal delay.

For PE sponsors, the message is clear: 2026’s regulatory wave demands a fundamental reassessment of UK real estate investment strategies. From commercial rent structures to residential tenancies and building safety compliance, each reform introduces new risks that must be priced, managed, and mitigated across the entire deal life cycle. Sponsors who adapt their underwriting, financing, and asset management approaches now will be best positioned to navigate this evolving landscape.