How Rent Review Works
How rent review works
Most leases with terms over five years (and some shorter leases) provide for rent to be reviewed at regular intervals. The lease will set out when the review is to take place and how the new rent is to be arrived at.
Rent review intervals
A 10 or 15 year lease will generally have rent reviews at the end of the fifth year of the term and every five years thereafter. Sometimes the first review will be at an earlier time, perhaps to fit in with the timing of rent reviews of neighbouring premises.
Upwards or downwards?
Traditionally, rent reviews are “upwards only”, meaning that the rent will either stay the same or increase on each review date. However, some newer leases may provide for an “upwards or downwards” review.
The Code for Leasing Business Premises in England and Wales 2007, also known as the Commercial Lease Code, encourages landlords to offer alternatives to the “upwards only” model priced on a risk-adjusted basis. For example, a lease may provide for upward/downwards reviews to market rent with a minimum of the initial rent.
Operating the rent review process
Many reviews are concluded informally, by agreement between the landlord and tenant or the surveyors representing them. Sometimes, a more formal process is used, involving the service of a notice by one of the parties to initiate the rent review. If negotiations do not result in agreement between the landlord and tenant, a third party will determine the revised rent and his determination will be binding on the parties.
The new rent is typically recorded in a Rent Review Memorandum which is signed by the parties and stored with (or attached to) the lease.