The ban on UORRs will have consequences for landlords and tenants alike, so it is important you know what they are and how they might impact you.
Currently, there are various mechanisms by which rent may be reviewed in commercial leases. For instance, an index-linked review involves adjusting the current rent rate in accordance with Retail Price Index and an open-market review involves considering what the property would be let for if it were re-let on the review date.
In theory, in the case of an index-linked review, the passing rent would decrease if there was negative inflation (i.e., below 0%), and likewise, if there was a drop in the market rental rates in an open-market review. However, leases are commonly drafted with an UORR which prevents a rental decrease, leaving tenants continuing to pay the higher previous rent. Whilst an UORR gives landlords and investors the certainty of reliable returns, it leaves tenants locked into higher rents in economic downturns.
The Bill’s ban will make UORR provisions unenforceable in new or renewal commercial leases. The driving force of the Bill is to support high street businesses by allowing rents to fluctuate with market trends. There is, however, a risk that landlords start offering shorter term leases to allow them to re-let their properties at new rent rates, and investors lose confidence in the commercial property market therefore impacting market growth.
The Bill has already been passed through the House of Commons and is currently in the House of Lords for scrutiny. If the Bill becomes legislation, it is speculated the ban will come into force in 2027-2028.
If you wish to discuss this further, please do not hesitate to contact Imogen Fleur by email: ixf@cooperburnett.com or tel: 01892 515022
This blog is not intended as legal advice that can be relied upon and CooperBurnett LLP does not accept any responsibility for the accuracy of its contents.
Originally published in the Tunbridge Wells Business Magazine: www.twbusinessmagazine.com
