How the rent is decided on lease renewal

The open-market test

The court fixes the rent at which the holding might reasonably be expected to be let in the open market by a willing lessor, on the other terms of the new tenancy. The valuation therefore depends on the term, the repairing obligation and the break rights that have been agreed or ordered — change those and the rent changes with them.

Evidence is comparables: lettings and renewals of similar premises at around the valuation date, analysed on a consistent basis. The valuation date is usually the date of the hearing, which is one reason the timing of notices matters in a moving market.

The disregards

Four things are left out of account. The fact that the tenant is in occupation, so the tenant is not charged for its own presence. Goodwill attached to the tenant's business. Improvements carried out by the tenant otherwise than under an obligation to the landlord, provided they were done during the current tenancy or within twenty-one years and the premises have been continuously let under the Act since. And any addition to value from the tenant's own licence where the premises are licensed.

The improvements disregard is often worth the most money. A tenant that fitted out a shell should not pay rent on its own fit-out — but it must be able to evidence what was done, when and under what obligation.

Rent review in the new lease

Section 34(3) allows the court to include a rent review provision in the new tenancy if it thinks fit, whether or not the old lease contained one. On a longer term an upward-only review is common; on a short term it may be resisted as unnecessary.

The ban on upwards-only rent reviews

The English Devolution and Community Empowerment Act has received Royal Assent and contains a ban on upwards-only rent reviews (UORRs) for business tenancies in England and Wales. The ban is not yet in force — regulations are expected to bring it into effect at some point in 2027 — but its scope is already wider than many landlords expected.

When it takes effect, the ban will apply to all business tenancies (including contracted-out leases and superior tenancies that would otherwise fall outside the 1954 Act). Open-market, index-linked and turnover rent reviews that include an upwards-only element will be prohibited. Upwards/downwards reviews, stepped or fixed rental uplifts, and the higher of two review mechanisms should remain permissible.

A retrospective element catches 'tenancy renewal arrangements' entered into on or after 17 March 2026. That includes contractual options to renew, agreements for lease, put options and call options with the existing tenant. A lease granted pursuant to such an arrangement after the ban commences is likely to be caught, even if the original lease was granted long before.

For tenants who are negotiating a 1954 Act renewal, this may be a reason to slow the timetable rather than accelerate it. If the ban is in force before the new lease is granted, the lease should not be able to contain an upwards-only rent review. That matters most in a softening or uncertain market, where the next review could realistically produce a rent reduction. Landlords, by contrast, will often want to lock a renewal in before the ban takes effect.

The commencement date and transitional rules are not yet known, so timing a renewal around the ban is a commercial judgement rather than a certainty. Speak to a commercial property surveyor at McGarrigle & Co if you are unsure whether to push forward or pause.

Source and further reading: Addleshaw Goddard, 'Upwards-only rent review ban: Royal Assent and a retrospective element' (August 2026).

The two-reference-amount trap

One detail in Schedule 7A that has not yet been tested in the courts is what happens when a rent review clause uses two variable amounts. A common example is a clause that sets the reviewed rent at the higher of (a) the original rent uprated by RPI, and (b) the open market rent at the review date. Both are variable; both could be 'reference amounts' under the new Schedule 7A.

Schedule 7A is drafted on the assumption that there is only one reference amount. Paragraph 9(1) bans a review where the 'new passing rent' is larger than 'the reference amount'. The singular could be read as including the plural under section 6 of the Interpretation Act 1978, but only 'unless the contrary intention appears'.

It is strongly arguable that the contrary intention does appear. If landlords and tenants could agree that the rent is the higher of two reference amounts, they could also draft a clause that sets the rent at the higher of the market rent at review or the market rent at the grant date. That would reproduce the practical effect of a traditional upwards-only rent review, which the ban is clearly meant to prevent.

Government correspondence has suggested that a higher-of-two-reference-amounts clause would still be valid if both parties agreed, and that guidance will follow. But a letter from the Ministry of Housing, Communities & Local Government is not binding on the courts, and tenants should not rely on it when the statutory text is so open.

If Schedule 7A permits only one reference amount, then to give effect to the ban it should be the lower of the two. That interpretation would prevent landlords from using a second variable as a floor to restore an upwards-only outcome. Until there is a decision or clearer statutory guidance, clauses with two reference amounts carry real litigation risk.

Source: Stephen Jourdan KC, 'A tale of two reference amounts' (Falcon Chambers, 9 July 2026).

Negotiating the rent

Because rent is a function of the terms, argue terms and rent together. A tenant that concedes a longer term or a full repairing obligation without adjusting the rent has given something away twice. Where the passing rent is above market, consider interim rent so the reduction bites earlier than the new lease.