Rent Reviews in Commercial Leases
Rent reviews clauses are crucial in a commercial lease which affects landlords and tenants. The process ensures that the rental amount being achieved and paid is fair and reflects markets conditions.
Let’s delve into the intricacies of rent reviews, exploring their importance, common methods, and practical considerations for both parties.
Recognising the importance of rent reviews in business leases
Rent reviews fulfil a number of crucial purposes in commercial leasing, including:
- Marketplace Harmony: They assist in bringing the rent in the range of going rates, guaranteeing that neither party is adversely affected by notable changes in the real estate market.
- Investment Protection: Regular rent evaluations shield landlords’ money from depreciation brought on by market forces or inflation.
- Financial Planning: For tenants, understanding potential rent increases allows for better financial planning and budgeting over the lease term.
Common methods of rent review
- Market Rent Review which is a method by which the rent is aligned with the market rate for similar properties.
- This involves input from valuers and negotiations between the parties to determine the market rent.
- Index Rent Review makes rent adjustments which are linked to a specific index such as Consumer Price Index (“CPI”).
- Fixed Percentage Increase is a rent increase by a predetermined percentage at set intervals as agreed between the parties.
- Stepped Rent Review which is an approach that combines fixed percentage increase and market reviews.
Tips for Landlords
Be prepared to gather comprehensive data and engage a surveyor or valuer in support of their suggested rent increase figure.
Be prepared to have negotiations with the support of valuers and lawyers to reach a mutually agreeable outcome with the tenant
Ensure that the lease clearly highlights the process for rent review including timing, method and dispute resolution mechanisms
Tips for Tenants
Undertake market research to understand potential rent increases that may apply during the lease term
Budget for the rent increase to avoid financial strains
Seek legal advice to fully understand the rent review clauses in their leases
If you are a landlord or tenant facing an upcoming rent review and need assistance with negotiations or understanding your lease obligations, please feel free to contact our Partner; Reema Chugh who specialises in Property & Construction disputes. To speak to Reema or one of our commercial property dispute experts call 0330 822 3451 or request a callback online.
