Dispute Resolution
“New Year, New Review” – How to Conduct a Rent Review
All well drafted Commercial leases will have clauses in relation to rent review.
These are inserted to protect tenants who want security of knowing what their rent will be for a certain term and landlords who want the freedom to amend the rent in line with the property market.
The most common form of rent review is open market rent review. This is where the rent is reviewed with reference to the market rent for comparable properties on the review date.
For commercial leases, rent review is dictated by the contract that both parties have entered in to. Some contractual clauses will allow for the rent for any review period to be agreed at any time. This could be the period from the beginning of any review date and ending on the day before the next review date. The review dates could be every 3-5 years since the start of the lease.
Most new leases will direct parties to initiate the rent review process by notice, from the landlord to the tenant, before the rent review date. Once notice has been provided to the tenant, the landlord will then carry out an assessment of the rent. The agreed rent is then recorded in a rent review memorandum and if the rent cannot be agreed, the matter can be referred to an independent third party. With some older leases, the tenant might have to serve a counter-notice if they object to the landlord’s proposed rent figure. Ideally both parties will agree the time limits for when this counter notice needs to be provided but if the parties cannot agree, the Courts might need to intervene.
Even though time is not normally of the essence for rent review, inclusion of the word “must” in some clauses suggests that it is. Therefore, if the landlord does not serve the notice in time, before the next review date, there will be a risk that no review can take place and the previous rent will carry on.
Janeet Jawanda, Trainee Solicitor in our Dispute Resolution team, said:
“If you’re looking to conduct a rent review and you are unsure about the correct process to follow, speak to a solicitor to ensure you are complying with any clauses in the contract you have entered. Similarly, if you’re unsure whether a draft contract has a fair rent review process, seek advice before signing. Contact our Romford office for more information on 01708 784000.”