14/01/2025
Lease AdvisoryWhat is a rent review in commercial leases?
The rent review clause in a commercial lease will define how the new rent is to be calculated, and will set out the assumptions (length of lease, use, state of repair, etc.) and disregards (goodwill, tenants' improvements, etc.) that are to be made. The assumptions and disregards that are to be made are generally similar across most commercial leases; however, slight variations can have a significant impact on the rent calculation.
Whilst most rents are reviewed to a market rent which is assessed by reference to comparable transactions, other rents can be reviewed to pre-agreed fixed amounts, or by reference to RPI (Retail Price Index).
How often do rent reviews occur?
Landlords want to see rents keeping up with market values during the terms of a lease, and in many cases, rents are often reviewed at three- or five-year intervals, although there is no hard and fast rule as to when a rent review should take place. Generally, the review periods are often agreed upon between the parties at lease commencement.
The majority of rent review clauses require the rent to be reviewed on an upward only basis i.e the new rent is to be the higher of the market rent or the rent passing immediately before the review date, however it is possible (where the tenant has managed to negotiate it at lease commencement) for rents to be reviewed on an upward or downward basis, although this is often strongly opposed by landlords (except during weaker market conditions where tenants hold a stronger negotiating position).
How much notice can a landlord give for rent reviews?
The short answer is that, unless the lease states to the contrary, there is usually no time limit for a rent review notice to be served, meaning that even if a rent review date was four years previous to the date notice was served, the rent review is still valid and capable of being negotiated. In these instances, it is particularly important to seek advice from a chartered surveyor.
A word of warning, some rent review clauses state that ‘time is of the essence’, and will set out an explicit timetable for the service of rent review notice and the requirements for the tenant’s response. Where a lease states that time is of the essence, it is vitally important that both landlords and tenants ensure any timescales defined in the review clause are met.
Why is it important to use a chartered surveyor for a rent review?
It is often the case that landlords and tenants alike believe they do not require a chartered surveyor's assistance to agree a rent review, but all too often we come across situations where landlords or tenants have been financially disadvantaged as a result of not seeking professional advice at the appropriate time.
For landlords, a well-negotiated rent review can result in an uplifted rent, which, in addition to improving the cash flow that is received from an asset, can in turn have a positive impact on the capital value of the property.
Whereas, for tenants, a poorly negotiated rent review can have a detrimental impact on the performance of the business, resulting in increased overheads, and can also have a knock-on effect on the business rates payable on the property.
Instruct an Eddisons RICS-certified surveyor now
If you have an upcoming rent review and want to be in the best possible position for negotiations, please contact us to arrange a free consultation. We have a proven track record of success, are RICS-certified and are here to meet your specific requirements.
Our surveyors can then work closely with our lease advisors to ensure your rent review goes as smoothly as possible. Please use the form below to get started.
