Partners at Knights have urged the Government to consult more widely on proposals to ban upwards-only rent reviews.
Currently, renters of commercial property will only see their rent increase or remain the same following landlord reviews, but the new proposals will give the option for rent to be reduced based on how the market is looking.
Jonathan Wright, a property partner based in the firm’s Birmingham office, believes the government should be talking more to the people at the heart of the issue: “We’ve only had very early indications about what’s being proposed, and we don’t feel there’s been a huge amount of consultation.
“These plans, to effectively introduce an each-way rent review, will have a huge impact, and the current state of high streets across the country has been cited as a root cause of this intervention. Many are filled with empty commercial units and there’s the chance the Government has taken the view that rent reviews are a key reason as to why people are unable to afford these shops.
“It’s a much more complex picture than that with varying factors, including rising business rates, a cause of this decline in uptake. I would say whilst trying to solve one issue – they’re creating a whole lot more.”
Property partner, Clare Darwood, says landlords will feel the impact: “On the face of it, this will be better for tenants as it gives room for their rent to decrease. As a result, landlords will be hit significantly as they will no longer be able to rely on a guaranteed level of rent throughout the period of a lease.
“The reach of the Bill is broad, and the Government seem intent on ruling out any means of side-stepping the changes. Index-linked, turnover-based and fixed rent reviews remain valid, but landlords won’t be able to enforce a minimum rent. They won’t simply be able to choose not to review the rent either, as the Bill will give tenants the opportunity to trigger a rent review irrespective of whether the lease allows for this.
“Despite this Bill not applying to existing leases, landlords will need to carefully assess their options ahead of any new or renewed lease they agree after it comes into force. As a result, I can see landlords doing what they need to protect their interests and negate any risk to them. This could see tenants negatively impacted as they are left with the reality of paying higher rent prices from day one whilst spending a premium on short-term leases as landlords seek that added security.”
Jonathan Wright concludes: “In addition, it’s possible that property portfolios could also be subject to lower valuations as the security of an upwards-only rent review disappears, and investment in property development could stagnate as investor confidence subsides.
“It remains to be seen how the market will react, and it could be a good while before we see whether or not the Bill will be passed in its current form, consultations will be needed and further advice sought, but the future of commercial leases could well be one of shorter leases, higher initial rents and stepped increases.”