The government wants to ben upward-only rent reviews, which have been part of commercial lettings contracts in England and Wales for several decades.
The proposal is part of the English Devolution and Community Empowerment Bill, introduced into Parliament at the end of last week.
The unexpected came with a government statement that these “pit landlords against businesses and can make rents unaffordable and cause shops to shut.
This will help keep small businesses running, boost local economies and job opportunities and help end the blight of vacant high streets and the unacceptable anti-social behaviour that comes with them.”
If it becomes law unamended, the proposal will not apply to existing contracts but will ban the introduction of upward-only clauses in new agreements.
Landlords will need to choose between agreeing fixed rents or introducing a review clause that allows rents to fall as well as go up.
Scott Goldstein, Partner at Payne Hicks Beach, comments: “This proposal seems to have come from nowhere. Although it will doubtless give some commercial tenants cause to celebrate, it is concerning that the proposal appears to have been developed in isolation from the work that the Law Commission is doing to amend the 1954 Act.
“It would have been better for all proposals relating to commercial tenancies to be considered at the same time, so that an assessment could be made of the impact that each could have on the other.”
Nick Mattison of Mattison Public Relations, a company which provides marketing support for fund managers, professional services firms and real estate businesses, says: “Plans to ban upward only rent reviews (UORR) are a blast from the past. Property landlords, including pension funds, will argue that banning UORR will undermine the value of that property and make it harder to secure lending to finance new commercial property developments.
“Banning UORR changes a commercial property from being a secure fixed income style investment to one where the cashflows are much more volatile.
“Last time this was tried the property industry managed to kick the proposals into the long grass. This will be a test of the lobbying power of the pensions industry and property landlords versus retailers.”
“The retail industry has been very clear that some of the unusual features of the UK’s property market – like UORR and overly long leases – add substantially to their costs. Before implementing any ban it would be sensible if the Government shared the research that they are using to justify this ban so that the research can be properly tested.”
This article is taken from Landlord Today