As with all landlord and tenant legal developments in England and Wales, it is useful to keep a close eye on any parliamentary bills in the event they later have legal effect in Northern Ireland.
One such bill, that could massively impact the real estate market, is The English Devolution and Community Empowerment Bill (“the Bill”). The Bill proposes banning upwards-only rent review clauses in new and renewed commercial leases.
The Bill aims to make commercial leasing fairer for tenants, boost economic growth, and help high street businesses. This reform will not be retrospective and will only apply to leases granted after the Bill becomes law.
Impact for landlords:
- Upwards-only rent reviews have been market norm for leases within the commercial property investment market.
- Investors (e.g. sole owners, property companies and pension funds) rely on fixed rents or upward only rent reviews for income and servicing debt. There is a potential for reduction in such income and lease term lengths will be given more consideration.
- Less appetite for landlords using commercial property as an asset class due to uncertainty on rents.
Impact for tenants:
- Easier to forecast expenditure on rent if fixed.
- Landlords likely to require increased rents from commencement of term to account for lack of upwards only rent review.
- Shorter lease terms as opposed to longer lease terms with rent reviews (not a major concern in Northern Ireland as tenants unable to contract out of the business tenancies legislation).
Ancillary impacts:
- Valuations of commercial property will have to factor in possible ban on upward only rent review.
- Rent review disputes.
- Government may lose out on rates as they are assessed on rental values.
Position in NI:
There are no immediate plans to introduce such measures in Northern Ireland as the Bill relates to England and Wales only at this stage. However it remains to be seen if it will have a role to play in Northern Ireland given the statutory protections already afforded to tenants by virtue of the Business Tenancies (Northern Ireland) Order 1996.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Our Commercial Real Estate team at Cleaver Fulton Rankin can provide you with the specialist advice you need.
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