rent review
Most commercial leases allow the landlord to review the rent at periodic intervals of 3 or, more commonly, 5 years. Landlords use a wide variety of rent review clauses, including:
- upward only reviews to open market rental value
- upward only reviews to reflect increases in the Retail Prices Index or another index
- fixed percentage increases in the amount of rent paid
Of these, the first is by far and away the most common – the main reason for this being that landlords want to maximise their rental income by tying the rent to increases in property values on the open market.
Businesses, when negotiating leases or thinking of taking an assignation to one, should be aware of alternatives. These include:
- depending on the tenant’s negotiating strength, it may be possible to negotiate an upward or downward rent review clause tied to the open market rental value of the premises. You need to take advice from your professional advisors on the feasibility of negotiating this.
- Some landlords of retail premises may be willing to allow their tenants to pay all or a proportion of rent linked to the turnover of the business. This is generally only the case at the start of a lease. The advantage to the tenant of using this type of rent clause is to share the risk of the success or otherwise of the business with the landlord.
- A combination of the above types of rent and rent review clauses may be suitable – for instance, a tenant may be able to negotiate, in a 15 year lease, a fixed percentage increase in the rent on the first rent review with upward only open market rent reviews occurring at the second rent review stage.
Rent review clauses are particularly complex provisions and, given their importance, specialist advice should always be taken from solicitors and/or surveyors.