What is a rent review clause?
Rent review clauses provide a variety of difference purposes. They give the landlord flexibility to ensure that they are charging the market rent for their commercial premises. They also act as a useful bargaining tool for both landlords and tenants when negotiating Heads of Terms.
Rent review clauses can be very complex and take many different forms and each of these varieties can have different implications for both the landlord and tenant. These clauses are one of the most common areas of dispute and litigation in lease so it is crucial that you obtain legal advice when dealing with them.
What are the different types of rent review?
- Fixed Increase Rent Review
This will be a figure, or perhaps a number of review figures, agreed between the parties when negotiating the Heads of Terms for the lease. With a fixed increase, both the landlord and the tenant have the advantage of knowing when the rent increase will occur and also the amount it will be for. This allows both landlords and tenants to plan for increases in income and outgoings in accordance with this.
- Upwards-Only Open Market Rent Reviews
These are probably the most common type of rent review clause. This type of rent review clause ensures that the rent is reviewed based on what the commercial property would be let for on the open market. If it would be let on the open market at a higher rental than is currently achieved by the landlord, then the rent will increase to that figure. Unfortunately for the tenant, if the rent is assessed as being lower than currently achieved, the rent will remain the same, rather than decrease any further than this.
- Upwards-Downwards Open Market Rent Review
- In tough financial times, landlords have been known to reduce rent in order to secure tenants in the property – however this is not a usual method any other time. This type of rent review allows for the rent to increase and decrease depending on the current financial climate however they are extremely rare and not widely used in practice.
- RPI Index Rent Review
The ‘Retail Price Index’ (RPI) measures the average change from on a monthly basis in the prices of goods and services purchased by most households in the United Kingdom. An RPI rent is a rent that increases in line with the ‘Retail Price Index’.
The rent reviews clauses are critical clauses for both a landlord and a tenant. Rent must always be reviewed to ensure that both your financial and commercial interests are protected. Therefore, it is always crucial to ensure that legal advice is obtained when dealing with rent review clauses.
If you have any questions about rent review or leases, or would like Ringrose Law to act on your behalf for your Commercial Property transaction, please contact a member of the Commercial Property team at Ringrose Law’s Newark office.