Rent Review

Modern commercial leases in excess of 5 years normally contain rent review provisions. The rent review provisions are often given inadequate consideration by both tenants and landlords.

The first issue which both parties should consider before entering into a lease agreement is whether a rent review during the lease term is appropriate. If the proposed lease is only for a short period, say less than five years, there may be no need to allow for a rent review.

The normal procedure at rent review is for the landlord to serve notice on the tenant of the landlord’s proposed increased rent. It is essential that the tenant obtains expert advice on rental levels for similar premises and on the lease terms itself as they will have an effect on any rental increase which the landlord can achieve.

For example, although less fashionable now, commercial leases regularly contain what are called ‘trigger notice’ provisions. If the tenant does not respond to the rent review notice within a set period he loses the right to contest the proposed increase and is stuck with the rent the landlord has proposed. Given that the rental level which the landlord first proposes can often be well in excess of what the landlord expects to achieve following negotiations, ‘trigger notice’ provisions can often be very detrimental to the tenant. This can also have a knock on effect because landlords will use the high rental increase as evidence of the open market rental when negotiating rental for other similar premises.

This is one point amongst many which must be taken into consideration in relation to rent review provisions. Advice should be sought by both the landlord and the tenant regarding rent review provisions both before entering into a lease agreement and at the time of rent review in order to avoid what could prove to be very costly mistakes.

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