Click here to read the full article: Upward-Only Rent Review Ban May Backfire For Tenants – Law360 UK
Scott’s comments have been reproduced below with kind permission.
Scott Goldstein, a property disputes partner at Payne Hicks Beach LLP, said the government appears to assume that landlords will simply accept lower rent because Parliament has changed the rules.
“They’re not going to do that,” Goldstein said. “They’ll find any way they can to get around that.”
Landlords are instead likely to consider higher starting rents, fixed increases, inflation-linked rents or shorter leases that avoid rent reviews altogether, according to Goldstein.
“If it’s indexation, if it’s a step rent, if it’s a higher initial rent, if it’s shorter-term tenancies — which basically just rule out rent reviews —it just means that after every couple of years, the tenant will be even more at the mercy of the landlord,” Goldstein said.
That is where the policy could misfire, lawyers say. The ban might stop one tenancy contract clause, but it does not stop landlords trying to protect the income they need for valuations, borrowing and investment.
The government’s guidance on the legislation gives the retail price index as an example of an alternative figure by which to calculate rent changes. But Goldstein said index-linked rents can produce harsh results for tenants when inflation spikes.
He pointed to a case he worked on involving a central London shopping center, where a rent formula linked to inflation increased rent by about 20%, which meant the tenant could not pay and had to surrender his tenancy.
Goldstein said the ban is unlikely to be catastrophic for landlords on its own because they have other tools available. But he said it is part of a wider shift in property law that is seen as tenant-friendly and could send a negative signal to investors.
Politicians sometimes view landlord and tenant relations too simply, Goldstein added.
“The way that it’s often perceived by politicians is that there’s this kind of adversarial relationship between landlords and tenants,” he said. “Sometimes there is, and oftentimes there isn’t.”
Goldstein acknowledged that some tenants may benefit from the ban. But he also said the policy could fail if the price tenants pay for that is a higher starting rent or another structure that replaces the old clause in practice.
“These things are complicated and commercial,” Goldstein said. “It’s not a question of if you pull a lever over here, this happens over there. That’s not how economics works.”
The full ban is expected to take effect in 2027, although the precise date is not yet clear. Interim rules already affect some renewal agreements.
Goldstein said landlords should review portfolios, renewal dates and rent review clauses, and decide whether there is any advantage in dealing with certain leases before the full ban takes effect.
“I don’t think that there’s cause for absolute panic by landlords,” Goldstein said. “Landlords are having to consider quite carefully what the new rules are and to think about what decisions they are going to make now.”
For further information, please contact Scott Goldstein, Partner in the Litigation, Arbitration & Dispute Resolution department, or alternatively, telephone 02074654300.
