A rent review is a vital part of most commercial leases and something that both tenants and landlords should consider well in advance of a rent review date.
Most rent review clauses will provide that the parties should seek to agree upon a figure that represents the current open market rent. However, if a figure cannot be agreed then the lease will usually call for an independent surveyor to be appointed to determine what the market rent is at the review date.
What tenants should consider
Market rates fluctuate according to a range of factors including supply and demand. The property market has been rising steadily following a long period of stagnation and tenants should consider this when negotiating a rent review and be prepared to accept an increase in rent if they successfully negotiated a reduction in previous years. However, we always recommend the advice of a Commercial Surveyor is obtained for guidance on the correct level of rent for the type of property.
If tenants have undertaken works to the property with the consent of the Landlord these may be disregarded on a rent review and it is important to ensure that all of the documents relating to the premises are fully considered by a qualified professional when agreeing on rental increases.
What landlords should consider
The term of a lease and flexibility within the lease will also affect how much rent a tenant is prepared to pay. If a short term letting is more attractive to a tenant they may agree to pay a higher rent than if a longer term was proposed. Similarly, a tenant with a long term business plan and a desire for stability and security may negotiate a lower rent initially subject to more frequent rent reviews.
If you are a tenant or a landlord and are about to enter into a lease, or renew a lease and would like specific advice please contact us.
This article was written by Keeley Miller, a Solicitor in our Commercial Property Team. This article is only intended to provide a general summary and does not constitute legal advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at May 2014.