Current stage of the Bill

As we reported in our alert issued in July last year, the English Devolution and Community Empowerment Bill (Bill) effectively bans upward only rent reviews in most new and renewed leases of commercial premises and restricts the amount of initial rent in leases granted pursuant to options. 

A revised draft of the Bill has since been issued and is at the report stage in the House of Lords, to be followed by a third reading before it returns to the Commons.

Potential retrospective effect – "tenancy renewal arrangements"

While generally the Bill is not retrospective, alarmingly for landlords, investors, and funders, that may not be the case for tenancy renewal arrangements entered into on or after 17 March 2026.

Baroness Taylor of Stevenage has put forward an amendment which, if enacted, will mean that initial rent payable under a lease granted pursuant to a tenancy renewal arrangement entered into on or after 17 March 2026 (the day her amendment was tabled) cannot be greater than the result of the rent review formula included in it. In other words, if the formula provides for a reference amount to be determined, for example, by reference to indexation, then even if the reference amount is below the passing rent in an existing lease, the initial rent must be the same as the reference amount. That restriction will apply where the rent for the new lease is not known and cannot be determined at the time the tenancy renewal arrangement is entered into. Such a new lease would also be subject to the ban on upward-only rent reviews.

Tenants of such new leases will also benefit from the tenants’ powers to invoke the contractual rent review and ensure it operates effectively. Those powers are set out in our alert.

A tenancy renewal arrangement is an arrangement pursuant to which a tenant under an existing tenancy can either require the landlord or another person to grant a new tenancy, or be required by the landlord or another person to take a new tenancy. It is apparent that:

• “put” and “call” options are tenancy renewal arrangements; beyond that, the precise scope of what other arrangements may be included is less certain; and
• the arrangement may be in the existing tenancy or documented separately with the tenant.

The provisions may not take effect, the amendment may be dropped or revised, and the Bill may not be enacted or brought into effect for some time. Nevertheless, the impact of this proposed amendment will need to be addressed by those currently negotiating such arrangements, and the implications of any arrangements already entered into should be considered.

Changes made to the draft Bill

The Baroness’s amendment has not yet been incorporated into the draft Bill. Changes made since the date of our alert are summarised below.

1. Definition of business tenancy

The original definition only included tenancies to which Part 2 of the Landlord and Tenant Act 1954 (1954 Act) applied, meaning it did not catch premises that were not occupied by a tenant (or a group company) for the purpose of a business, as highlighted in our alert. That loophole is closed by the revised Bill. 

Business tenancies that will be subject to the restrictions in the Bill will also include those to which Part 2 of the 1954 Act potentially applies, being tenancies where:

1. Part 2 does not currently apply because either the demised premises are not occupied in whole or part by the tenant, or they are so occupied but not for a business purpose; and
2. the tenancy includes terms that permit occupation for business purposes; and
3. if the tenant were to occupy for the permitted business purposes (taking into account all other circumstances), Part 2 of the 1954 Act would apply.

2. Options

As stated above, it is apparent that the provisions relating to “put options” where the tenant can be required by the landlord or another person to take a new tenancy, as described in our alert, will also apply to “call options” where the tenant can require the landlord or another person to grant a new tenancy, and that other tenancy renewal arrangements may be within scope – note the potential for the Bill to apply to them retrospectively.

3. Superior lease requirements relating to rent review provisions in a sub-tenancy

If a business tenancy requires or permits the tenant to grant a sub-tenancy and the sub-tenancy would, at the time of its grant, be a business tenancy with a rent review, notwithstanding the terms of the tenancy out of which the sub-tenancy is granted (superior lease), the landlord under that superior lease may not, after the date the Bill comes into force, require the sub-tenancy to contain upward-only rent review provisions. 

While this restriction applies where a sub-tenancy is being granted after the Bill is enacted, it may at that time relate to a superior lease entered into before commencement of the Bill – another element of retrospectivity being introduced. In certain circumstances, this could lead to the tenant under the superior lease paying a higher rent than it can recover as landlord under a sub-tenancy, being a new lease subject to the provisions banning upward-only rent reviews. A requirement in the superior lease that the initial rent in the sub-tenancy be the higher of the passing rent under the superior lease or market rent does not appear to contravene the Bill.

Comment 

Since the Bill was first introduced to Parliament, stakeholders have been considering how to deal with the impact of the proposed changes, to mitigate the effect of the absence of a mechanism to ensure a minimum return on investment.  As acknowledged by Lord Jamieson during the debate at the committee stage of the Bill in the House of Lords, there are “several key concerns: reduced investment in liquidity, threatening regional development; shorter lease durations with fewer stable long-term tenancies; higher initial rents, counteracting the Government’s aim of supporting the high street; increased financing costs, making commercial development harder to deliver; and a slowing down of regeneration projects across the country, especially in areas dependent on external investment, thereby hampering growth, which the Government say is their number one priority”.

Stakeholders trying to plan ahead by granting options for new leases now with upward-only rent reviews will be stymied if Baroness Taylor of Stevenage’s amendment to the Bill is enacted.

On a more positive note, for landlords, investors, and funders, the Bill does permit the Secretary of State to make regulations creating exceptions to the ban. The Baroness said at the committee stage: “In recognition that these clauses can provide some security to investors, we have committed to consult on how caps and collars could be used” – stakeholders will hope the consultation is undertaken and that they are listened to. There is, however, no current evidence to suggest that the effect of the Bill will be so mitigated.

Client Alert 2026-081