Over the past five years, various businesses have gone into administration, leaving vacant shop fronts in their wake. Now, in an unexpected move, the UK Government is proposing a ban on certain business leases, in order to revitalise the struggling high street.
Commercial leases in England and Wales commonly include an Upwards Only Rent Review (UORR) clause. This means the rent can only stay the same or increase, never fall – even if the market rent drops.
But part of the English Devolution and Community Empowerment Bill, announced last Thursday, would ensure a ban on UORRs, meaning they could legally not be used to block commercial rent from decreasing during reviews.
How would a UORR ban work?
UORR clauses, which prevent tenants from negotiating lower rents, have long been criticised for harming brick-and-mortar businesses. They can lead to unaffordable rent increases, even when market conditions suggest otherwise.
According to a government publication, UORR clauses are “artificially inflating commercial rents and ultimately pricing out small businesses from town centres.” The issue affects almost every kind of brick-and-mortar business including offices, cafes, and beauty salons.
Under the draft proposals, in place of UORRs, rent would instead be calculated using the method outlined in the lease. For example, by tracking changes in the Retail Price Index (RPI). This means the rent could go up, go down, or stay the same.
The law will only apply to UORR clauses in new lease agreements, so existing contracts won’t be affected. However, the draft legislation would serve to make new contracts more flexible, and ensure that small businesses cannot be locked into rent rises they can’t afford.
Draft bill signals hope from hospitality
Many business leaders, particularly in hospitality, have welcomed the draft bill, which could make leases fairer – even if not always cheaper. Notably, those in hospitality.
Amid rising costs and mounting labour shortages, the suggested UORR ban has proven popular for a sector in desperate need of relief.
“We have been calling for a ban [on upward-rent reviews] for decades and I’m very pleased that it is now being implemented”, says Kate Nicholls, Chair of UK Hospitality.
Not everyone was pleased by the announcement, however. Place North West reports the plans were criticised by Melanie Leech, chief executive of the British Property Federation.
“Interference in long-established commercial leasing arrangements without any prior consultation or warning has no place in the bill,” Leech said.
What about business rates?
The proposed ban on UORRs appears to have taken many by surprise. But, since this government came to power last year, the mission to revive the UK’s town and city centres has been at the forefront of its policymaking.
At the end of last year, local councils were awarded the ‘right to rent’, another measure to tackle the issue of vacant shops. The move allows local authorities to rent out long-term empty commercial properties without first needing to obtain permission.
Firms are still waiting on help with a related property cost, however. Fixing the business rate system was billed as a top pledge from Labour during the general election.
However, progress has stalled after parts of the plan were blocked by the House of Lords, prompting renewed calls for reform. On Monday, the Greene King CEO labelled the current system ‘unfair’ and called for urgent changes.
Nicholls seems to agree, adding: “This ban, alongside business rates reform, is critical to cut costs and red tape for businesses, and allow hospitality to drive high street regeneration.”
