SME'S Under Threat From Rent Reviews: Will lease reform revive or restrict SME growth?

Matthew Martin
7 days ago
2 min read

The UK government’s recent proposal to ban upwards-only rent reviews on commercial leases is creating waves across the property and business sectors. While intended to protect small businesses, experts warn that the reforms could introduce uncertainty, potentially impacting High Street stability, commercial property investment, and small business growth.

Understanding the Proposed Rent Review Changes

The English Devolution and Community Empowerment Bill, introduced to Parliament last month, includes provisions to prohibit upwards-only rent review clauses and minimum uplift mechanisms in new commercial leases in England and Wales. For decades, these clauses have given landlords predictable income and underpinned long-term investment strategies.

While the reforms aim to support tenants, the reality may be more complex:

Shorter Lease Terms: Landlords are expected to reduce lease durations to three to five years, down from the traditional ten to fifteen years, potentially disrupting business planning and stability.

Loss of Lease Renewal Protections: Many leases could be contracted out of the Landlord and Tenant Act 1954, removing automatic renewal rights for commercial tenants.

Potential Rent Increases: Fixed uplifts of 2%-4% or index-linked clauses may replace open-market rent reviews, raising medium-term rental costs. Landlords may also front-load rents at lease inception.

Reduced Incentives: Rent-free periods and fit-out contributions may decline, making it more expensive for new tenants to open or expand businesses on the High Street.

The Impact on Investment and Regeneration

Predictable rental income is vital for property investors and for funding commercial developments. Removing upwards-only reviews could reduce investor appetite, particularly in secondary locations, slowing regeneration projects and limiting economic growth.

Turnover-based rents and legal disputes over lease interpretations may further complicate the commercial property landscape, affecting both landlords and tenants.

How SMEs Can Prepare

Small and medium-sized businesses need to be proactive in navigating these potential changes. Planning, securing flexible financing, and understanding lease agreements will be key to maintaining stability on the High Street.

Approved Finance Group: Supporting SMEs and High Street Businesses

At Approved Finance Group, we understand the challenges these rent review reforms may create for small businesses. Our business and property finance products are designed to help SMEs manage cash flow, secure premises, and invest in growth, even in uncertain market conditions.

Our tailored solutions include:

Commercial Property Finance: Flexible loans and funding for new shop openings, lease renewals, or property investments.

Business Loans for SMEs: Short-term and long-term financing to support operational growth or expansion plans.

Tailored Advisory Support: Expert guidance on managing lease obligations, rental costs, and property investment strategies.

By partnering with Approved Finance Group, High Street businesses can safeguard their operations, access the capital they need, and thrive in a changing commercial landscape.

Conclusion

While the government’s rent review reforms aim to support small businesses, they could inadvertently create challenges for High Street occupiers and commercial property investors.

Proactive planning and the right financial support are essential for SMEs to navigate this evolving environment successfully. Approved Finance Group is here to provide the finance solutions and guidance that small businesses need to remain resilient, grow, and prosper.