What the ban on upwards-only rent reviews means for the office sector

For decades, these lease provisions have offered landlords the assurance that rents can rise or, at worst, remain flat even as markets falter. This feature has underpinned the appeal of UK offices for global investors seeking steady, bond-like cash flows in a volatile world.

However, landlords may also find new opportunities in a shifting environment. The use of fixed or stepped rents could still allow for predictable income streams without relying on contested market reviews. Whilst a move to indexation, as seen on the continent and the US, could be a beneficial move in terms of removing an adversarial element of the customer journey through real estate. Those who can adapt quickly may also differentiate themselves in a more occupier-friendly market.

The UK office market has weathered structural shocks before. The leasehold reforms of the 1990s dented landlord confidence and forced investors to price in regulatory risk. As an example, during the global financial crisis office rents tumbled, but upwards-only reviews shielded landlords from the worst of the damage, preserving the UK’s reputation as a safe haven for sovereign wealth funds and overseas capital. More recently, the pandemic accelerated remote working and eroded tenant demand for long leases, further undermining the stability of income flows. In fact, these shocks have resulted in very little uplift at review over the last 20 years. 

Potential unintended consequences of the legislation could include a shift toward outside the Act leases that grant landlords more control and cut occupiers’ statutory protections, plus rental inflation as landlords seek value capture through the new legislation.

In summary, a ban on UORRs marks a significant shift in office leasing norms. While it introduces new challenges for landlords, it also prompts innovation, and requires greater collaboration between negotiating parties.