Fixed Rent Increases

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone

When negotiating the rent review provisions of a commercial lease the parties may consider foregoing a rent review procedure and instead opt for a fixed rent increase. Fixed rent increases, otherwise known as stepped rent increases, provide for a set increase in the rent at specific points in the lease.  For example, in a 3 year term, the rent may initially start in year 1 at £10,000, increasing to £15,000 in year 2 and then £20,000 in year 3.

The advantages and disadvantages for both Landlord and Tenant are considered below:

Advantages

  • It is a lot simpler for both parties as the rent is agreed at the outset of the lease eradicating the need for formal rent reviews to be carried out during the term which can often take time and cost money.
  • The Tenant knows exactly how much revenue it will have to generate to continue the lease and can plan for this accordingly.
  • Likewise a Landlord will know how much their income will be in each term of the lease.
  • If the market rentals go up then the rent will be capped at the agreed amounts.

Disadvantages

  • The parties are bound by the terms of the lease and therefore the rent increase may not reflect the current market conditions.  If a recession hits the Tenant will be bound by the terms of the lease and may struggle to pay the fixed amount.
  • For a Landlord the fixed rent may be substantially less then it could achieve in the current market.
  • The Landlord may be less inclined to comply with its obligations under the lease such as maintaining the common parts of the building.

Fixed rent increases are uncommon in commercial leases with a term of under 15 years due to the inflexibility for Landlords. However, it is important for both Landlord and Tenant to consider the advantages that a fixed rent has to offer.

If you require further advice or information on this subject then please contact our Commercial Property team on 0800 689 0831 or send any question through to Forbes Solicitors via our online Contact Form.

Laura Bradley

About Laura Bradley

Laura Bradley is a Solicitor in the Commercial Property department at Forbes Solicitors. Within her blogs Laura deals with all aspects of commercial property including leases (from both landlord and tenant perspective), licences, acquisitions and disposals along with recent updates within the property sector.
This entry was posted in Commercial Property and tagged , , , , , , , .

Leave a Reply

Your email address will not be published. Required fields are marked *