A rent review clause in a lease allows for the amount of rent charged to be adjusted periodically, during the course of the tenancy.
Landlords and tenants may need legal assistance where a landlord is looking to trigger a rent review clause as this may lead to a dispute. The terms of the lease will usually provide a dispute resolution process if a new rent cannot be agreed by discussion and negotiation.
Common rent review considerations
One of the major aspects of a rent review clause is the question of how rent is to be assessed when it is reviewed. There are several different methods:
Open market value – This is the most common, and involves analysis of the rental income the property could be expected to achieve if it were to be listed on the open market. Whilst technically this could lead to a reduction in rent where market values have fallen, protection is often added to the clause to ensure that the rent payable is only ever adjusted upwards.
Turnover – This involves assessing the tenant’s turnover and charging rent accordingly, often as a percentage. The clause will usually specify a minimum amount of rent to be paid in situations where turnover is low.
Retail Prices Index – This will base the rent review assessment on inflation with reference to the retail prices index. This method and the turnover method are often found in commercial leases in the retail sector.
A rent review may also include certain ‘assumptions’ and ‘disregards’. These represent ways in which the rent review can operate without taking account of the actual state of the commercial property. For example, an assumption may be specified that, when determining the open market value, the tenant is assumed to have complied with all of their obligations under the lease. This prevents situations where the market value is reduced due to poor maintenance on the part of the tenant, perhaps for the purpose of influencing the rent review.
Similarly, a disregard might be specified that any improvements to the property which the tenant has made should be disregarded when assessing the open market value. This ensures a landlord cannot benefit from increased rent where a tenant’s work has caused the increase to the commercial property’s market value.
Instructing Luscombe Gray
Luscombe Gray is a boutique property litigation firm, providing a legal service tailored to the needs of our clients. We believe first-class legal advice should be available to all.
If you need legal support in relation to rent reviews, contact Luscombe Gray for clear and expert advice. Your case will be handled by an experienced property litigation solicitor.
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