"When considering the Bill’s provisions, Westminster’s parliamentary draftsmen have manifestly studied international precedents, including Ireland, to ensure that they benefit from best practice in legislative design and clarity."
- Brian O'Callaghan - William Fry LLP
As part of the UK government’s commitment to widen devolution across England, the Devolution and Community Empowerment Bill was introduced in July. Although its primary objective is to support struggling retailers and aid high street regeneration, it will also apply to all business tenancies. Notably, the Bill includes the proposed abolition of upwards-only rent reviews.
To help struggling retail tenants, Ireland took a similar step 15 years ago: as a direct response to the 2009-10 financial crisis, the Irish Land and Conveyancing Law Reform Act 2009 (Land Act) banned upwards-only rent review clauses in every new commercial lease entered into on or after 28 February 2010.
So, what lessons can English practitioners draw from the Irish experience?
Because the Irish reform was not retrospective, a two-tier market emerged. Irish landlords initially circumvented the ban in lease negotiations by inserting clauses that granted them the exclusive right to initiate rent reviews, as this had not been specifically addressed in the Land Act, thereby maintaining artificially high rents in a declining market by choosing not to trigger a review. Although Irish law prohibits any condition that effectively operates as an upwards-only clause, the legality of these clauses remains unclear.
When considering the Bill’s provisions, Westminster’s parliamentary draftsmen have manifestly studied international precedents, including Ireland, to ensure that they benefit from best practice in legislative design and clarity.
Like Ireland, the proposed law will not apply retrospectively in England. Critically, the draft English Bill addresses a potential loophole: landlord-only triggers are explicitly forbidden. Ireland saw legal disputes arise over ambiguous rent review clauses - something which can be minimised by clear legislation and guidance.
Once it was passed, the Irish legislation created an immediate two-tier market: due to the prevailing economic conditions, tenants on ‘new’ leases were able to achieve significantly lower rents. They also benefited from open market rent reviews - by contrast, tenants on 'old' leases were tied to rents that had been set at the market peak. Because the average prevailing lease duration was 20/25 years, sometimes with a 15-year break, they were also tied to upwards-only provisions for several more rent review cycles.
Invariably, existing tenants were put at a significant disadvantage. The subsequent imbalance caused many established retailers to close, while newer tenants gained a competitive edge: a consequence of poorly-managed transition periods. To avoid similar market dislocation in England, prudent implementation is imperative.
Irish reform also led to a pronounced reduction in lease durations: typical retail leases now last between five and ten years, usually with a break clause at year five. Although they are still longer, typically around fifteen years, office and logistics leases have also shortened, reflecting the significant development and investment needs of those sectors. Conversely, investment in retail remains limited.
Many English retailers already have shorter leases than their Irish counterparts, ranging between four and seven years. Although a further reduction in lease terms might not be significantly disruptive, the proposed changes could create a shift toward five-year leases, thereby evening out the landscape. In turn, this would lead to landlords requiring tenants to contract out of the Landlord and Tenant Act 1954 and eliminating rent reviews at lease expiry.
To provide greater income certainty, some landlords could push for longer lease terms. However, it would still take up to 5 years - and even longer for commercial property - posing a significant financial risk for businesses and investors.
Under the draft Bill, alternative rent review mechanisms such as stepped rents, fixed increases, index-linked reviews, and “cap and collar” arrangements are allowed, which could deliver the predictability that landlords and institutional investors need.
It was anticipated that such alternative mechanisms would become widespread in Ireland, but only Consumer Price Index (CPI) linked reviews have since gained traction, with open market rent reviews gradually becoming the accepted norm.
Reliant on predictable returns, UK institutional investors may resist reform unless alternative models like CPI-linked or turnover-based rents are introduced by the market to protect yields. Regardless of previously agreed commercial terms, tenants could equally insist that leases under negotiation reflect the forthcoming legislation and include open market rent review clauses.
Only three months elapsed between the publication of the draft legislation in Ireland and its enactment. During this short period, tenants began to act as though the law was already in force. The UK’s legislative timeline will be longer, with Royal Assent anticipated next Spring, but similar behaviour from English tenants seems likely.
England in 2025 is, of course, quite different from Ireland in 2010 when market rents were at historic lows. Irish rents have since trended gradually upward, so the full impact of the ban on upwards-only rent reviews has not yet been tested by a sustained market downturn.
Proposed reform in England could create short-term volatility, but if changes are implemented gradually and clearly, it could also lead to a more flexible, tenant-friendly market in the long term.
