The recent decision to ban upward-only rent review clauses in English commercial leases marks a huge development in property law.

Removing the ability for landlords to guarantee rent increases signals a shift in policy, away from landlord protection and towards tenant flexibility. Whilst this is being introduced in England and Wales, it also has an important impact on businesses and investors operating in Scotland’s rental market.

The impact in Scotland

At the moment, there is no equivalent reform in Scotland. Upward-only rent reviews remain lawful and are still commonly used in commercial leases. In doing so, this benefits landlords by ensuring rents can rise but cannot fall. For tenants, however, this could mean being locked into rents that no longer reflect market conditions.

There is a strong argument that Scotland should maintain the status quo since the aim of the reform south of the border is to support tenants and high streets by allowing rents to fall in line with market conditions. However, should Scotland follow suit, there is a risk of reduced investment certainty, a possible rise in starting rents and an increased reliance on alternative (and potentially more complex) rent mechanisms.

Even if Scotland does not follow suit, the reform in England and Wales may still influence the Scottish market. Well-advised UK-wide tenants are likely to look more closely at rent review provisions in new leases and lease regears, and as a result, could begin to resist upward-only clauses. At the same time, many landlords and investors take a portfolio-wide approach, which may result in a decline in leases containing such clauses to allow for a consistent approach when leasing property across different jurisdictions.

As a result, upwards-only rent reviews could become less attractive in Scotland. They may remain lawful, but their use could depend increasingly on the wider commercial context, the strength of the market and the negotiating position of the parties.

Next steps for occupiers, landlords and investors

Whilst the reform to upwards-only rent reviews is being introduced, this is an opportunity for Scotland to observe how the reforms work in practice before deciding whether to implement similar legislation. For any business with commercial property, whether as an occupier, investor or developer, there is an opportunity to consider what action might be needed.

Scottish businesses should use this moment to review their lease structures, test whether they are still fit for purpose, and consider whether more flexible rent review mechanisms may be appropriate to manage risk.

For occupiers, that may mean reviewing upcoming break dates, rent reviews and lease renewals to identify opportunities to negotiate more balanced terms. For investors and landlords, that means checking whether current lease terms protect rental income, support valuation assumptions and meet lender or buyer expectations.

For businesses with cross-border portfolios, a joined-up approach will be required. They should map which leases sit in Scotland and which sit in England or Wales, compare the rent review terms across those assets, and decide whether any changes are needed before renewals, regears, acquisitions or disposals. This planning will help avoid inconsistent terms, unexpected rental exposure and difficulties when valuing or refinancing the portfolio.

Whether Scotland ultimately adopts similar reforms or not, the reforms in England and Wales are likely to influence how rent review clauses are negotiated across the UK and Scottish businesses should carefully consider how to respond. Those that review their lease arrangements early, and understand where flexibility or exposure sits within their portfolio, will be better placed to respond.