Real estate focus: July 2025

Surprise surprise: proposed ban on upward only rent review shakes the commercial property industry

The commercial property sector was taken by surprise on 10 July 2025 when the government introduced its English Devolution and Community Empowerment Bill (the Bill) for, tucked away in this 338-page document, appears proposed provisions which effectively ban upward only rent reviews (UORR) in most commercial leases.  Whilst not a completely "out of the blue" proposal (a ban on UORR was mooted 25 years ago by the Blair government), the provisions have been announced without consultation and have been criticised by the industry for having a potentially significant adverse effect on the commercial property market. The BPF has been outspoken in its criticism, slamming the move as an example of the government interfering in "long established commercial leasing arrangements without any prior consultation or warning".

The issue

What is upwards only rent review and why is it important? 

UORRs are rent review clauses in commercial leases which set, at the start of the lease, a mechanism for a review of rent (during the term of the lease) to an undetermined figure but which prevents the rent from ever decreasing. These types of clauses have been the cornerstone of the UK property market for years, giving landlords and investors security as to a minimum level of income. 

Why is the government proposing to ban UORRs? 

The government criticises UORR clauses which "pit landlords against businesses and can make rents unaffordable and cause shops to shut". In its limited guidance on the issue, the government states that the move is designed to empower small businesses and protect high streets by setting rents more efficiently and stimulating economic growth. 

The new provisions are mainly contained in schedule 31 of the Bill and will ultimately add a new schedule 7A to the Landlord and Tenant Act 1954 (1954 Act). 

Which types of leases does the ban apply to? 

The ban will apply to all business tenancies to which Part 2 of the 1954 Act applies, meaning where the tenant is occupying for business purposes. It will therefore affect leases from high street retail stores to large industrial sheds. It will apply whether or not the tenant has "contracted out" of its right to security of tenure under the 1954 Act. 

Which types of rent review will the ban apply to? 

The ban will apply to any rent review where, on the date on which the lease is granted, the rent to be paid following the review is not known or cannot be determined. This will include rent reviews (containing an upward only element) based on market rent, index-linked reviews with "collars" and turnover rents.   

Will the ban be retrospective, i.e., will it apply to rent review clauses in existing leases? 

The ban will not be retrospective and will not affect existing leases entered into before the Bill comes into force. It will also not apply to leases entered into pursuant to contracts exchanged prior to the Bill coming into force. It will, however, apply in renewal leases, and/or where the tenant is required to take a new lease pursuant to a put-option. 

Does the ban apply to leases where the tenant is not in actual occupation of the premises?

As currently drafted, it appears the ban may not affect leases where the tenant is not in actual occupation of the premises. Therefore, the ban will apply to a sub-lease but not to the "head" tenant's own lease, meaning the tenant may be forced to pay its landlord more on rent review than its subtenant pays the tenant. The ban will also have an impact on the sub-letting market as it will not apply to leases which pre-date the ban but will apply to sub-leases that are entered into after the ban.

Does the proposed legislation offer any other benefits to tenants? 

If a trigger notice is needed to start the rent review process, the Bill gives tenants the right to initiate this process even if, under the terms of the lease, this power has only been allocated to the landlord. 

The effect

What is the main effect of the ban? 

A rent review clause containing an upward-only provision will have no effect, with the new rent being the figure that it would have been without the upward-only clause. 

Which rent review clauses are and are not allowed? 

Rent reviews can still be index linked, but only on the basis that, if the index moves negatively, the reviewed rent would be below the passing rent (i.e., the rent payable pre-review). Index-linked reviews with a fixed minimum rent (i.e., a "collar") will not be allowed - any collar will be ignored.

Similarly, rent reviews can be made by reference to the market rent prevailing at the date of the review, but will be capped at that rate, so the rent can move downwards to match a lower market rent. 

The ban does not apply to rental increases which are fixed in advance (i.e., stepped rents).

The impact 

Will the ban actually benefit tenants? 

The government’s intention is to help small businesses, but there is doubt within the industry that a ban on UORRs will do much to help. There is already more flexibility in leases to small businesses (including high street tenants), as these are typically shorter-term leases which don't even include rent review provisions. 

In addition, the industry may attempt to bypass the UORR ban in ways which may disadvantage tenants, such as an increase in stepped rent leases, with rental levels which might not reflect the market to the detriment of the tenant. Alternatively, in an attempt to alleviate any uncertainty in rental income, landlords may insist on higher rents at the start of the lease, which is the opposite consequence of what the government intends. 

What is the impact on landlords and the commercial property sector generally? 

There is widespread concern within the industry that these proposals create significant uncertainty which may be damaging to investment in the commercial property sector going forwards. This is particularly worrying at a time when businesses need confidence. Landlords rely on UORR to guarantee a minimum level of income as a basis on which to invest, and continue investing, given its effect on property valuations for investment and lending decisions. The ban on UORR may lead to reduced valuations, and consequently reduced investment in areas where the government is actually trying to support. 

How might leases change as a result? 

At the outset, there will likely be a two-tier system with existing leases based on an UORR scenario, but with new leases which cannot include UORR. As alluded to above, landlords and investors are likely to find ways to alleviate the uncertainty caused by the ban on UORR, with increases in leases with index-based reviews (considering the limited number of occasions in practice on which indexes have gone down), and stepped rent arrangements. 

The future 

What are the timings for the bill coming into force? 

At this stage, the Bill is only a proposal and there is not even a date for a second reading. The Bill itself is very long, and with parliamentary recess during the coming month, it is unlikely to move until later this year.

What is the market expected to do in advance of the Bill coming into force?

Given the absence of consultation with the industry, and the projected damage to investment in the UK commercial real estate sector as a result of the proposals, there is likely to be extensive lobbying against the Bill as it progresses through parliament. We will be watching this space and providing updates as the Bill progresses (or does not, as many in the industry appear to be hoping). 

Recent legal developments in Building Safety: Court of Appeal affirms retrospective effect of the Building Safety Act 2022 and considers the ‘just and equitable’ discretion for remediation contribution orders

The Court of Appeal has recently handed down the first major appellate rulings on remediation contribution orders (RCO) under the Building Safety Act 2022 (BSA), providing much-needed clarity on the ‘just and equitable’ discretion to be exercised when making such orders and the retrospective effect of the BSA.

Factual Background

The BSA emerged from disputes concerning liability for building safety and remediation costs in the aftermath of the Grenfell Tower tragedy and was enacted to address systemic failings in building safety regulation. Amongst its wide-ranging provisions, the BSA introduces a liability mechanism and hierarchy for historic building safety defects and extends limitation periods for claims under made the Defective Premises Act 1972. Section 124 of the BSA introduces the concept of RCOs, to order specified parties to contribute towards the cost of works to remedy building safety defects to “relevant buildings” (defined in the BSA as buildings at least 11 metres in height or with at least five storeys and containing at least two residential units).

Triathlon Homes LLP v Stratford Village Development Partnership and Get Living Plc [2024] concerned the cost of rectifying wide-ranging fire safety defects identified in five residential blocks in the former London 2012 Olympic Village in Stratford, London. The development of the blocks was undertaken by Stratford Village Development Partnership (SVDP), a limited partnership which at the time of construction had been owned by the Olympic Delivery Authority but had subsequently been acquired by Get Living Plc. Triathlon Homes LLP (Triathlon), a long leaseholder of all the social and affordable housing in the five blocks, applied to the First-tier Tribunal (FTT) for RCOs under section 124 of the BSA, seeking to compel SVDP and Get Living to pay for remediation costs of the fire safety defects. At first instance, the FTT agreed it was ‘just and equitable’ to order RCOs against SVDP and Get Living pursuant to section 124.

Issues on appeal

In Triathlon, the ‘leapfrog’ appeal to the Court of Appeal raised two main grounds: (1) whether the FTT had erred in exercising its ‘just and equitable’ discretion to make the RCOs under section 124 and (2) whether RCOs could be granted for costs incurred before section 124 came into force in June 2022.

In rejecting the ‘just and equitable’ discretion ground of appeal, the Court of Appeal affirmed that:

1. One of the central purposes of the Act was to hold accountable those responsible for building safety defects, with primary responsibility placed on the developer, which sits at the top of the hierarchy; 
2. Public funding under the Building Safety Fund (BSF) was a matter of last resort, even where works had already commenced and were being paid for by the BSF. It was not to be considered an out-an-out grant but the provision of temporary funding pending recovery from those who may be found legally liable. Accordingly, the BSF does not displace the provisions of the BSA or the potential liability of developers, landlords and other associated entities who may be the subject of RCO applications.
3. It was not unfair for Triathlon, as a long leaseholder of the residential blocks, to take advantage of its legal right to apply for an RCO instead of pursuing other potential claims available to it and Triathlon did not have to explain its intentions to enforce its rights pursuant to the BSA rather than through alternative means. 

In relation to the second ground of appeal whether section 124 BSA should have retrospective effect, the Court of Appeal conclusively determined that the entirety of Part 5 of the BSA (of which section 124 forms part) was clearly intended by Parliament to have retrospective effect in order to achieve an important policy goal of enabling claims against those responsible for defects, even when works were completed many years ago. In particular, the BSA’s purpose is to protect leaseholders from financial risk and ensure those responsible for defects are held accountable. Denying retrospectivity would, in the circumstances, create serious inconsistences and haphazard patterns of protection for those leaseholders where remedial works had already been carried out and paid for under service charge provisions, as they would be left without statutory remedy. Any perceived unfairness to potential defendants not having a retrospective time-bar is considered a necessary price of achieving this policy goal and is mitigated by the safety valve under section 124 that the FTT must exercise its ‘just and equitable’ discretion, which allows the FTT to tailor RCOs to specific circumstances. 

Key Takeaways

The judgment in Triathlon provides clear reinforcement of the core principles underpinning the BSA and offers important clarification regarding its practical application. In terms of liability, the decision emphasises developer and associate responsibility, while also confirming that RCOs may apply to works and costs already incurred prior to June 2022. Additionally, the decision clarifies the supplementary nature of the publicly-funded Building Safety Fund. Though the “just and equitable” discretion remains an essential safeguard, its future exercise will be guided by Parliament’s express objective to protect leaseholders and ensure that responsible parties bear the associated costs.

Further example of retrospective effect of the BSA

Further to the Triathlon appeal, the Court of Appeal sat sequentially to consider the appeal of a second BSA-related case, Adriatic Land 5 Limited v Long Leaseholders [2024], which concerned the distinct issue of whether certain professional costs associated with interim safety measures could be recovered through the service charge under long leasehold agreements.

Schedule 8 of the BSA limits or excludes service charge recoverability for costs related to defects falling within the scope of the BSA. Paragraph 9 of Schedule 8 specifically prohibits landlords and management agents from recovering service charges for legal or other professional services relating to liability incurred due to relevant defects. 

Adriatic Land 5 Limited (Adriatic), the freehold owner of the relevant residential building, had applied to the FTT for special dispensation to avoid the usual section 20 leaseholder consultation requirements in order that it could carry out urgent safety works to the building. The FTT granted dispensation to Adriatic conditional upon it being unable to recover costs from the leaseholders of the building. On appeal to the Upper Tribunal, it was held the FTT was wrong to impose such a costs condition but that paragraph 9 of Schedule 8 of the BSA, which had recently come into force in June 2022, meant that Adriatic could not recover their costs of the original FTT application from qualifying leaseholders. Adriatic appealed the Upper Tribunal’s decision to preclude the recovery of its FTT application costs under paragraph 9 of Schedule 8 BSA. 

Following a similar line of reasoning to that expressed in Triathlon, the Court of Appeal has determined that paragraph 9 of Schedule 8 had retrospective effect to preclude recovery through service charge of any professional costs where such costs had not been paid by leaseholders before June 2022. Even then however, leaseholders who have paid service charges in respect of costs incurred to remedy relevant defects can apply for RCOs under section 124 of the BSA, and such an order could be made against the landlord to whom the service charges had been paid if that were considered “just and equitable”.

Are the Building Safety Regulator reforms up to speed?

Summary: As the government takes control of the Building Safety Regulator in the wake of mounting criticism of delay and inefficiency, Norton Rose Fulbright LLP reviews the proposed reforms in the context of construction projects.  

The BSR and its aims 

The Building Safety Act 2022 (BSA) established the Building Safety Regulator (BSR) to oversee the safety and standards of buildings, especially in relation to higher-risk buildings (HRBs). 

The BSA defines HRBs as buildings being at least 18 meters in height or having at least seven storeys; and which are either a hospital or a care home or have at least two residential units. These building are identified by the government as posing specific safety risks due to the nature of their use and construction.  

On 1 October 2023, the BSR became the Building Control Authority for all HRBs in England and is currently part of the Health and Safety Executive (HSE). 

The BSR is responsible for setting and regulating standards for the design and construction of buildings. The BSR seeks to achieve its objectives by implementing a new regulatory regime for HRBs in England and overseeing and enforcing the new regime for occupation of high-rise buildings.  

The BSR also oversees the safety and performance of all buildings, performance of other building control bodies such as local authorities and advises on existing and emerging building standards and safety risks. The BSR’s role is to promote competency among industry professionals and regulators to raise overall standards in the design, construction and management of buildings. 

Bumps in the road

While the BSR’s objectives are commendable, achieving these objectives has not been as smooth as might have been hoped.

Since the BSR’s establishment in 2022, it has faced criticism from the construction industry for inefficiencies and delays in processing applications and approvals, which has led to delays to the construction of HRBs and other projects. By way of example, Gateway Two approvals, considered the checkpoint before any construction work on HRBs can begin, were intended to take around 12 weeks for new builds. However, approvals are currently taking double that time, sometimes up to 40-48 weeks. Another industry concern is that the BSR is stopping HRBs from being built rather than making them safe. This is leading to what are widely considered unnecessary delays to the government’s proposals to increase the number of residential units within England and Wales.  

In the construction industry, delays come with increased costs, time extensions, budget overruns, and design re-work. Such delays and uncertainty can strain the developer/employer relationship with contractors, consultants and investors. This has a knock-on effect on funding for projects, as investors and funders want to realise their return on investment sooner and any uncertainty can cause a lack of confidence in the market. 

Is there a cure?

With the aim of tackling the mounting criticisms of the BSR, the Ministry of Housing Communities and Local Government (MHCLG) has announced reforms to the BSR including removing it from the control of the HSE and bringing it into the control of a new arm’s length agency of the MHCLG. This proposal flows from the government’s ‘Plan for Change’ initiative to deliver on 1.5 million high rise homes over a five-year period – a plan that has had its own significant blocks and delays. 

The MHCLG says the BSR reforms are set to:

• Introduce a new fast track process to accelerate the review of newbuild applications and unblock delays. MHCLG aims to achieve this by integrating the building inspector and engineer capacity directly into the BSR to enhance the processing and review of existing newbuild cases and remediation decisions.
• Speed up remediation of all buildings with unsafe cladding which require remediation, in line with the government’s Remediation Acceleration Plan. 
• Bring about leadership changes (with the appointment of a non-executive chair of a new MHCLG shadow board and a new BSR CEO) and further investment in the BSR with the recruitment of over 100 new staff to enhance the BSR’s operational capacity. 
• Take early steps towards establishing a single construction regulator, which is a key recommendation from the Grenfell Tower Inquiry. 

Looking ahead 

The reforms to enhance the efficiency and effectiveness of the BSR are welcome changes as:

• High rejection rates of Gateway Two applications and lack of clarity around narrative-led submissions have caused difficulties with progressing projects. The proposed reforms are likely to create a stronger sense of accountability, collaboration and investment opportunities for the construction sector. 
• The new fast track process for newbuild applications (especially for HRBs) could increase the speed of planning and gateway approvals. This should lower costs and improve project timelines. 
• The MHCLG’s aim to speed up remediation for HRBs could set the stage for plans to remediate non-HRBs as well, creating alignment with the government’s Remediation Acceleration Plan. Whilst the Remediation Acceleration Plan (for remediating all buildings over 11m with unsafe cladding by 2029) has been welcomed for its ambition, it comes with uncertainty regarding how it will be enforced in practice. 
• A single construction regulator would consolidate safety functions which would address the long-standing fragmented regulatory landscape of the construction industry. The Grenfell Tower Inquiry exposed a complex and fragmentated regulatory system in the construction industry, which had lost the trust and confidence of the sector and did not prioritise accountability. 

Whilst the proposed BSR reforms are welcome, there remains concern around how the fast-track process will operate in practice, and when the new processes will be implemented. The industry will require much more detail to feel reassured that these changes will reduce the delays, and lead to the increased efficiency and effectiveness in the construction of the new homes. However, the proposed reforms are a positive move towards a much needed single construction regulatory system which sets clear standards and requirements that parties can understand, and that operates efficiently to avoid needlessly increasing the time and cost of completing projects. 

Government consultation on strengthening leaseholder protections over charges and services

On 4 July, the Ministry of Housing, Communities and Local Government launched a consultation on its implementation (through secondary legislation) of a range of measures brought in by the Leasehold and Freehold Reform Act 2024 (LFRA). Aiming to address the “unfair and unreasonable practices” to which leaseholders are subject, the measures being consulted on intend to standardise and increase the transparency around service charges and building insurance, tackle the regulation of managing agents, and scrap the presumption that leaseholders pay landlords’ legal costs. They form part of the government’s Plan for Change to drive up living standards and complement work to bring the “feudal” leasehold system to an end.

Service charges and building insurance

Service charges account for about one in three of all enquiries received by the Leasehold Advisory Service. Consequently, the government hopes the proposed measures will address the “opaque and unaffordable” nature of service charges and the way in which they are administered.

Some of the key proposals include:

• an annual report setting out information about the buildings and the cost of maintaining it so that leaseholders know what they are paying for, including advance notice of major planned works;
• a standardised form for service charge demands, spelling out how charges are calculated and spent;
• a requirement for landlords to issue a “ future demand notice”, detailing estimated total service costs, the leaseholder’s contribution towards the costs, and the expected date of the demand;
• a requirement for landlords to publish an administration charge schedule showing what charges leaseholders may be liable to pay, and how the costs are calculated; 
• a new standardised statutory written statement of accounts, financial reporting standards and assurance that the reports have been prepared correctly and by an appropriate professional; 
• mandating the use of a reserve fund as provision for future expenditure; and
• a requirement for landlords to proactively provide information on their insurance policy to leaseholders.

In addition, the consultation is reviewing the process under Section 20 of the Landlord and Tenant Act 1985 which requires landlords to consult leaseholders on major works funded by a service charge. This could entail increasing the financial threshold for triggering Section 20 or restricting the types of work within the process’s scope, so there can be meaningful consultation where appropriate but ensuring smaller works are not unnecessarily delayed.

Litigation costs 

The LFRA seeks to rebalance the litigation costs regime to make it easier for leaseholders to recover costs from certain legal proceedings, for example by introducing a new right for leaseholders to apply to the relevant tribunal or court to recover their litigation costs from the landlords (at present, only the landlord has this ability). The consultation seeks views on refinements to the proposed measures so that they work well for leaseholders, landlords and tribunals alike.  

Regulation of managing agents 

In order to protect leaseholders from poor service at the hands of “unscrupulous managing agents”, the government proposes to introduce mandatory qualification requirements to ensure that managing agents/estate managers have the skills required to deliver their role to a high standard. 

A benefit to landlords?

While these reforms are framed as strengthening leaseholder rights and may at first appear to place an even greater administrative burden on landlords, it could be argued there are some benefits to landlords. For instance, there are proposals to digitise processes relating to court-appointed managing agents (under Section 24 of the Landlord and Tenant Act 1987), holding leaseholder money in trust, and other provision of information. Coupled with greater use of IT and electronic communication, the proposals could streamline services and potentially reduce administration costs for leaseholders and landlords.

The consultation closes on 26 September 2025, and you can respond here.