What Tenants Need To Know About Rent Review Provisions!

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Rent review remains one of the most important elements in a commercial lease, therefore it is important that a Tenant is familiar with the rent review provisions at the outset to avoid being faced with a substantial rent increase further down the line.

A commercial property (office, factory etc) will usually be rented out for a length of time agreed between the landlord and the tenant.  Sometimes, for a long lease, intervals would have been pre-agreed where a review can be conducted to establish if the rent value should be adjusted.  The frequency of rent reviews is typically once every three to five years or at the end of a lease, before renewal (usually 12 months before).  

The lease will specify the basis for the new rent. In some cases, the new level of rent may be set (for example, at £10,000 per year) or based on an index (such as the retail price index). But more commonly, the new rent is based on the open market rental value – the rent charged for similar properties on similar leases. The lease may also include terms such as an ‘upwards only’ rent review, allowing the rent to increase but not fall.

Keeping an eye on local rental levels gives you a guide to open market values. The landlord will typically base the proposed rent increase on rents being asked for the most appealing similar properties to yours, but there is usually scope for negotiation. Detailed comparisons of the size, location and condition of different properties may justify a lower open market rent for your premises. Differences in lease terms such as restrictions on use and the length of unexpired lease can also be factors.

The lease will also set out the procedures to be followed. It is now common in most modern leases for landlords to provide that time is not to be deemed “of the essence”. This is because if, for example, a lease stipulates that time is “of the essence” and that a landlord must serve a tenant with a rent review notice no later than six months prior to the rent review date then if the landlord fails to do so, the opportunity for the landlord to increase the rent will have been lost, at least until the next rent review arises which may not be for another five years. Therefore by stipulating in the rent review clause that time is specifically not “of the essence” a landlord who overlooks a rent review can still initiate the rent review procedure perhaps weeks or even months after the review date, as stipulated in the lease, has passed by.

If a tenant objects to the landlord’s proposals it must serve on the landlord a counter-notice. The form of counter-notice varies from lease to lease; sometimes the tenant is merely required to indicate his objection to the landlord’s proposal; sometimes he is required to elect to have the rent determined by an independent third party.

Our Commercial Property Team offer a fixed fee lease report which will flag up any issues you may have regarding rent review provisions.

 

For further information contact our Property Solicitors on 0800 689 0831 or make an enquiry here.

 

Stacey Lakeland

About Stacey Lakeland

Stacey Lakeland is a Trainee Solicitor within the Property department at Forbes Solicitors. Stacey’s blogs cover general property matters relating to both residential and commercial property matters such as updates to legislation affecting the property sector, landlord and tenant matters, topics which relate to the construction and development sector and also issues relating to property disposals and acquisitions, to name a few.
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