Modern commercial leases typically contain the provision of a rent review at whatever intervals are stated within the lease but commonly, every 3 or 5 years.
The intended purpose of a commercial rent review is to adjust the rent to the market level of the time of the review. The majority, but not all, rent reviews are ‘upward only’ which means that a tenant’s rent will either remain the same or increase.
Any proposed increase by the landlord is subject to debate and negotiation. Naturally as a tenant you will be focused on minimising any potential increase.
Commercial rent reviews can be complex and often take quite a long time to resolve. This is because very few rent review clauses are the same. The majority are drafted individually to suit the needs of the occupier and the type of property. Even by reading the rent review clause, it may not be easy to determine exactly what is meant.
The length of term is a classic example of potential confusion within a rent review clause. It is often expressed by reference to the original number of years granted. However, this has been construed by the courts in a number of well documented cases to mean the unexpired residue of the lease. In the current market where shorter leases are becoming more common, a tenant with a long term lease may have good grounds for opposing a rent increase.
In addition, to the complexities contained within the lease, there can also be important considerations with regards to the market conditions and any comparable evidence being used.
Landlords will utilise evidence that is most favourable to them. Therefore, this has to be assessed as to whether it is really comparable or not. For example, a landlord may quote a rent achieved on a similar sized office suite, within the same building as the tenant. This would appear to be strong evidence. However, if that suite benefits from air conditioning then you would expect it to achieve a higher rent!
Whilst we cannot explain all the aspects of a commercial rent review, you will hopefully by now appreciate that rent reviews are not as straight forward as they may first appear. That is why we work with tenants by applying our expertise and market knowledge to help minimise any increases at review.
As part of our commercial rent review advice we will:-
- Review the lease to confirm the commercial rent review date
- Review the terms of the lease which impact on the rent review
- Compile details of the latest market evidence
- Negotiate with the landlord the most favourable terms possible
- Prepare third party submissions if agreement cannot be reached
- Document agreed rent by way of a rent review memorandum