Rent review of commercial property leases

Leases of commercial buildings can prove to be complex documents, governing the relationship between Landlord and Tenant for terms which commonly extend to 25 years. Arguably, the most complex provisions of the lease are those relating to rent review. An area has taken up considerable court time and expense to determine disputes between property owners and tenants regarding the amount of rent passing at various stages throughout the life of a lease.

Rent review enables the rent payable under a lease to be varied at intervals during the course of that lease. It is clear to see why a property owner would wish to include such a provision in their lease. Depending on the type of mechanism used, it may allow the property owner to benefit from an uplift in market rental values or, to stipulate at the outset stepped increases that are to take place through the term of the lease.

Similarly, tenants will have a keen interest to have rent review provisions carefully drafted or fully reported to them. The introduction of The Code for Leasing Business Premises (“The Code”) does appear to mark a shift towards more flexible, shorter-term leases. Flexibility is encouraged especially in the area of rent review. The Code encourages property owners to avoid insisting on provisions that allow upwards only rent reviews and attempts to allow both the property owner and tenant the ability to start the review process. In modern leases and with the introduction of The Code, it may be that tenants are becoming better placed to negotiate more favourable terms. Notwithstanding this, the Code remains voluntary and tenants who fail to address this area when taking a lease may suffer rents regarded as unfair as and higher than they may have anticipated.

How does rent review take place and how often?

Rent review can take place in various ways. It is for each individual lease to determine the mechanism used. Common forms of rent review include stepped increases, those linked to a tenant’s turnover or a rent set in accordance with a prices index. Whilst these methods may prove to be less cumbersome, the most common form remains an open market rent review. Although complex, this type of review does allow the rent to be set at a level that is in-line with market conditions at the time of the review. That said, despite The Code, it is common for open market rent review provisions to be drafted to provide for upwards only reviews meaning that on review, the property owner will either retain the level of rent payable or benefit from an uplift. It will depend upon the bargaining positions of the parties at the outset, as to the terms that are negotiated but, it may be that in the current economic climate, tenants may find that their advisers are in a stronger position to secure a rent review provision that may go up as well as down.

When the time comes for the rent to be reviewed, the procedure can be commenced either by notice or by the parties entering into negotiations. It is common for a lease to stipulate that a rent review will take place every five years. However, a trend towards more flexible, shorter leases has seen rent review increasingly taking place at three year intervals. Again, this remains a matter for negotiation between the property owner and tenant but it should be borne in mind that the more frequent the rent reviews, the greater the costs especially where agreement cannot be reached. Consideration will need to be given to whether more regular rent reviews are worthwhile considering the costs involved.

Industrial / Commercial Rent Reviews / Lease Renewals

With extensive market knowledge and professionalism, we are in a position to arrange the service of Landlord & Tenant Notices where appropriate, provide advice and undertake negotiations upon behalf of Clients, both Landlords and Tenants in settling industrial and commercial property rent reviews and lease renewals.

Including research as to market rental value having regard to lease provisions, strategic advice and where necessary progressing to third party for determination. Whether by negotiation or third party determination, we can offer expert and professional advice.

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Landlords

We act for a number of individual and corporate landlords ensuring rent reviews are handled in accordance with the terms of the lease and important rent notices served in time. We can help you:

  • Maximise returns from your portfolio.
  • Ensure you are getting the correct amount of rent based on the latest market evidence.
  • Liaise directly with your tenant or your tenant’s solicitor/surveyor.
  • We work across all sectors including shops, offices, industrial and leisure.

Contact us today for an informal chat and find out how we can help.

Tenants

It is important to seek expert advice when approaching a rent review. We can help ensure:

  • The rent proposed by your landlord is fair and based on your local market
  • Provide expert advice on the open market rent of your property
  • Negotiate directly with your landlord or your landlord’s solicitor/surveyor
  • We work across all sectors including shops, offices, industrial and leisure

Time is of the essence if you have been served notice from your Landlord owner get in touch today to find out how we can save you money.

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Contact us today for an informal chat and find out how we can save you money.

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