Review of Rent in Commercial Leases
How rent review works
Most leases with terms lasting longer than 5 years provide for the rent to be reviewed at regular intervals. This ensures that the tenant is paying an appropriate rent, taking into account any changes in the rental market.
Types of rent review
The most common type of rent review is an open market review. The revised rent reflects the open market rental value of the premises at the review date. However, sometimes a different method of ascertaining the new rent is used. This might be an index-linked review (e.g. linked to movement in the retail prices index) or the lease may specify fixed rent increases at certain years of the term. A turnover rent, where annual rent is linked to the annual turnover of the tenant’s business, is another possibility.
Resolving rent review disputes
Many rent reviews are concluded informally by negotiation. Sometimes the parties fail to agree and it is then necessary to have the revised rent determined by a third party. The lease will set out a procedure for determination by an expert or an arbitrator.
Rent review memorandum
When the new rent has been agreed (or determined by a third party) it will be recorded in a rent review memorandum. The memorandum should be kept with the lease as it is an important part of the documentation between the landlord and the tenant.