Rent Review Frequency & Types
Frequency of Rent Reviews: Reviews are likely to take place at 5 year intervals during the term, usually set at anniversaries of the commencement date of the lease.
Types of Rent Review: The most common formula is open market valuation (OMV) at a future date i.e. how much a tenant would be prepared to pay at that date for such premises were they on the open market. The figure will be arrived at either informally, by formal negotiated rent review procedures or, failing agreement, by appointment of an arbitrator or an independent valuer.
What is considered in an OMV is the nature of your leasehold interest in the premises. A wide variety of factors may be taken into account including the duration of the lease, the type of premises and the state of the market.
In addition, the terms of the agreement will need to be considered particularly where there are provisions which are potentially disadvantageous from a tenant's point of view. Such terms may include:
(1) the tenant's obligations;
(2) restrictions on disposal of the lease;
(3) restriction on use;
(4) improvements to the premises;
(5) any break clause in the landlord's favour; or
(6) if the landlord has made a VAT election in respect of the premises.
The rent review clause in the lease will also include assumptions that concern the premises, the parties and other factors. It should also identify those matters to be disregarded such as any goodwill generated by the tenant, and any improvements he makes.
Apart from the OMV method, you may encounter other mechanisms. There may, in rare cases, be provision for increases at a fixed rate. Alternatively, increases may be index - linked e.g. by reference to the Retail Price Index. Index - linked increases are generally rare as movements in the indexes and in property prices are not always consistent. A further possibility is the rent being linked either to the turnover or net profits generated at the premises.
Types of Rent Review: The most common formula is open market valuation (OMV) at a future date i.e. how much a tenant would be prepared to pay at that date for such premises were they on the open market. The figure will be arrived at either informally, by formal negotiated rent review procedures or, failing agreement, by appointment of an arbitrator or an independent valuer.
What is considered in an OMV is the nature of your leasehold interest in the premises. A wide variety of factors may be taken into account including the duration of the lease, the type of premises and the state of the market.
In addition, the terms of the agreement will need to be considered particularly where there are provisions which are potentially disadvantageous from a tenant's point of view. Such terms may include:
(1) the tenant's obligations;
(2) restrictions on disposal of the lease;
(3) restriction on use;
(4) improvements to the premises;
(5) any break clause in the landlord's favour; or
(6) if the landlord has made a VAT election in respect of the premises.
The rent review clause in the lease will also include assumptions that concern the premises, the parties and other factors. It should also identify those matters to be disregarded such as any goodwill generated by the tenant, and any improvements he makes.
Apart from the OMV method, you may encounter other mechanisms. There may, in rare cases, be provision for increases at a fixed rate. Alternatively, increases may be index - linked e.g. by reference to the Retail Price Index. Index - linked increases are generally rare as movements in the indexes and in property prices are not always consistent. A further possibility is the rent being linked either to the turnover or net profits generated at the premises.