Commercial leases generally include a rent review clause allowing for the periodic review of the rent upwards to take into account increases in the market value of the property.
Rent review is often set for once every three to five years, with the lease stipulating exactly how and when the review will take place.
How are commercial rents reviewed?
When initially agreeing on the terms of the lease, you have the option to negotiate the basis on which the rent will be reviewed. Common options include:
- Open market rental value
- Index rent reviews, generally based on the Retail Prices Index
- Fixed rent increase
- Turnover rent, based on the turnover of the tenant’s business
The lease will specify the dates on which rent can be reviewed and it is up to the parties as to whether they decide to review or simply leave the rent as it is.
However, the landlord can decide to backdate a rent review, leaving the tenant with a substantial bill. If the landlord does not intend to review the rent, then ideally the tenant should ask for confirmation of this is in writing.
In some cases where the lease states that time is of the essence, the landlord may miss the opportunity to review the rent if it does not go ahead with this in accordance with the timescale in the lease.
The Landlord and Tenant Act 1954 Section 34
Section 34 of the Landlord and Tenant Act 1954 states that where the court is asked to decide the amount of rent that should be payable, it will have regard to both the provisions of the tenancy agreement and the open market rent for the premises.
The Act also contains details of when alterations to the premises can be taken into account when assessing the rent. If the tenant was required by the landlord to carry out improvements, these can be taken into account. Where the tenant chose to carry out improvements, for example, obtaining a licence to alter, then the improvement can be disregarded. The law in this area can be complex and depend on the timing of alterations. It is advisable to speak to a legal expert to determine whether they will be taken into account or whether they will be disregarded.
Assumptions and disregards
The rent review clause in the lease is likely to contain a list of points that are to be assumed and points that are to be disregarded when assessing the new rent.
Assumptions are usually the length of the lease, use of the property, that the tenant has complied with their obligations under the lease and the state of repair of the property.
Disregarded issues include goodwill and improvements that the tenant has made.
The wording of these points can potentially make a difference to the landlord’s ability to increase the rent, so ideally the rent review clause will have been carefully negotiated and drafted at the start of the tenancy.
Our commercial rent review solicitors can advise you on the permitted scope of the review and whether a landlord’s proposals are reasonable and in accordance with the terms of the lease.
Agreeing on a commercial rent review
The lease will generally give guidelines as to how the rent review is to be conducted. This is usually done by each party instructing a valuer, with the figures obtained used as a starting point for negotiations.
The party who commences the review process should clearly set out in notice form that they are reviewing the rent and state the amount they are proposing.
The lease may also contain provisions for dealing with the situation if the landlord and the tenant cannot reach an agreement over the revised rent.
Some form of alternative dispute resolution will usually be stipulated, such as mediation or arbitration. It is recommended that you seek legal advice if you are having difficulties agreeing with new rent provisions, to ensure that your rights and interests are safeguarded.
At Witan Solicitors, our commercial property team have extensive experience in negotiating and agreeing on rent reviews. We will make a strong case on your behalf and work to reach an agreement without unnecessary delay.
Contact our commercial rent review solicitors
At Witan Solicitors, we represent landlords and tenants across a range of sectors. We can advise you in respect of a rent review under the terms of your lease and discuss your options with you if a dispute has arisen.
For more information, see our page on property disputes.
If you need advice and help with a commercial rent review, email us at info@witansolicitors.co.uk or fill in our contact form and we will be happy to help you. We have offices in London, Birmingham and Northampton.
