Rent Reviews: what are they and what if I ignore one?
13 May 2024
Taylor Bracewell
Rent reviews are a common aspect of leasing agreements, yet many tenants find themselves uncertain about their purpose and consequences. Understanding rent reviews is crucial to maintaining a healthy landlord-tenant relationship and avoiding potential financial pitfalls.
What are rent reviews?
A rent review gives a landlord the option to change the rent at set times during the term of the lease. Whilst the majority of rent review clauses increase the rent, in extremely rare cases the rent can actually be reduced. Most commercial leases (especially longer leases) will contain a rent review clause.
Whilst there are many different mechanisms which can be used to calculate the new rent which will be charged to the tenant, the most common is “market rent”. This means that the rent can be increased at set dates to reflect the current rental market at that point. This is beneficial for a landlord as the market position can change during the term of the lease and this ensures that the landlord is receiving a fair rent throughout. If the market has declined it is usual for the rent to remain the same.
How often should a rent review take place?
Landlords and tenants are free to negotiate the frequency of rent reviews before a lease is entered into as there is no legal precedent. A landlord will prefer the time frame to be shorter and a tenant will prefer a longer period of time between rent reviews. It is therefore important that the landlord and tenant reach a mutually beneficial agreement before the lease is entered into.
Should I ignore a rent review?
Most commercial leases contain a rent review clause allowing the landlord to increase the rent. As a tenant it is tempting to bury your head in the sand when this date arrives and hope that the landlord forgets!
However, what many tenants do not realise is that the landlord can implement the rent review at any time after the date that it is due, they are not tied to the exact date. If a rent review date is missed and then subsequently carried out in the future, any rent increase is not only payable from the date that the review took place but can be backdated to when the review was due under the lease. On top of this, the landlord can also charge interest on the backdated rent.
It is therefore extremely important that a rent review is carried out and documented when it is due, even if both parties sign to say that the rent is to remain the same.
How can Taylor Bracewell’s commercial property team assist you?
Our experienced commercial property team are experts within their field, including rent reviews. For further information please contact our Doncaster team on 01302 341414 or our Sheffield team 0114 272 1884. Alternatively, you can fill out our online enquiry form.
