For landlords and tenants, the next phase of commercial property change is likely to be felt in two very practical areas: how rent is reviewed, and how energy efficient a building needs to be.
Both can affect the cost of occupation, the attractiveness of premises and the way lease negotiations are approached.
At present, there are no restrictions on upward-only rent reviews in leases of commercial premises. Such rent review provisions are a matter of negotiation between landlords and tenants, often agreed at heads of terms stage where both parties have agents advising them. For many years, upward-only rent reviews have been common in commercial leases. They are generally seen as landlord-friendly because, even in a falling market, the rent cannot go down.
The enactment of the English Devolution and Community Empowerment Act 2026 (the Act) on 29 April 2026 signals a future change of that position. Although the title may not appear to suggest a direct link with commercial property, the Act includes provisions which, once brought into operation at a future date by secondary legislation, will ban on upward-only rent reviews in commercial leases in England and Wales.
This provision of the Act will, if brought into operation by secondary legislation, ban upward-only open market rent reviews, upward-only index-linked reviews and upward-only turnover rent reviews. At this stage, there is an application that for the ban to come into force during 2027.
That does not mean, however, that landlords and tenants should wait until then. Any “tenancy renewal arrangements” (which will likely capture options to renew leases and agreements for lease) entered into on or after 17 March 2026, will be caught by the provisions of the Act meaning that any leases granted pursuant to these tenancy renewal arrangements will also be subject to the ban on upward-only rent reviews contained in the Act if these are if brought into operation by secondary legislation. Parties entering into any such tenancy renewal arrangements now therefore need to understand how the provisions of the Act could impact on the terms of any lease granted pursuant to a tenancy renewal arrangement.
The commercial impact is still uncertain because the market has not yet had to respond to the provisions of the Act in practice. However, there is already an expectation that landlords may look at alternative structures, including fixed stepped rent increases and shorter lease terms. A landlord who cannot rely on an upward-only rent review may be reluctant to commit to a long lease without some other mechanism for rental growth.
For tenants, the position is equally important. A business with a lease renewal due in the next 12 to 18 months should take advice early. That advice may come from a RICS-qualified surveyor on market terms, and from a solicitor on the legal effect of the existing lease and any proposed renewal. Tenants should understand when their lease expires, whether they have renewal rights, whether there are break provisions, and how any new rent review wording may affect them over the term.
In practice, it is expected that many agents, solicitors, landlords and tenants will start acting as though the new provisions are already on the horizon. Tenants negotiating renewals now may want to question whether upward-only wording should still be included in their leases. Landlords will need to consider what alternative drafting or commercial approach is appropriate. As with any lease negotiation, the outcome will depend on the property, the market, the bargaining position of each side and the advice they receive.
Energy performance is the other major area where commercial property owners and occupiers need to prepare. The Minimum Energy Efficiency Standards (the MEES Regulations) regulations have been in place for more than eight years, yet I still encounter landlords who are unaware of the legislation or resistant to it.
Since 1 April 2023, all leases of commercial premises have legally required a minimum EPC rating of E. The discussion now is around proposals to move towards a minimum C rating requirement from (potentially from as early as 2027), with an overall ambition of a requirement for a minimum B rating from 2030. No legislation has yet been enacted to bring those proposed higher standards into force, and the timetable will depend on the government of the day and the policy decisions that follow. However, landlords should not assume that delay removes the need to plan.
A significant proportion of commercial stock in England and Wales is said to fall short of the proposed energy efficiency rating requirements. Landlords therefore need to look at their portfolios and consider what improvements may be needed, what they may cost, when they could sensibly be carried out, and how they interact with lease events such as renewals, break dates or refurbishment plans.
In some cases, improving energy efficiency can also support the commercial position of a property. Better-performing premises may be more attractive to tenants, may reduce running costs and may support rental value. That will not be the answer in every case, but it is part of the assessment landlords should be making.
The financial impact of the MEES Regulations needs careful attention. Under the current MEES Regulations, the obligation to pay for any costs for making any energy efficiency improvement works to bring a property up to the required standard so it is compliant with the MEES Regulations generally sits with the landlord, and the cost should not simply be passed to the tenant.
Green lease clauses are also becoming more common, particularly among larger landlords. These clauses usually require landlords and tenants to co-operate on environmental performance, share relevant data and work together to improve the energy efficiency of commercial premises. Where green clauses are included in a lease, tenants should take advice on what they are agreeing to and whether any obligations could create a financial exposure.
For both landlords and tenants, the sensible approach is to understand the current rules, identify the changes that may affect their position, and take advice before committing to new lease terms. Commercial property is often about timing, and preparation is part of protecting that position.
Mathew Clapham discusses commercial property in the Legal Insights podcast. Listen here:
