Rent Reviews In Commercial Leases – A Guide
Commercial leases are complicated, important documents – as a business landlord, you want to make sure your rental income is as profitable as possible whilst factoring in what is a fair rent for your tenant.
A well-drawn Rent review enables landlords and tenants to reach an agreement that is deemed acceptable to both sides, taking into account various factors such as the open market rent, inflation or the tenant’s turnover at the premises.
The government is currently planning to ban existing and new commercial leases’ rent review clauses from being rental increase-only-based and instead is seeking for leases to include the option of a rental reduction, when appropriate. HLF Berry Solicitors are keeping a close eye on this Bill and will post updates on this as soon as we learn more on this topic.
Why Rent Reviews Are Important
Rent reviews enable commercial property landlords to adjust rental amounts for tenants on a regular basis. This ensures landlords get a reasonable return on their capital investment in the property and don’t become stuck, charging the same amount as the original rent stated on the lease – with a review, market rent rates can be applied.
These review clauses are included in commercial leases and should allow both landlords and tenants negotiate a new rental amount, taking into account various factors.
Landlords and tenants use a rent review to negotiate and reach an agreement on the annual rent increase. Negotiations are complex and normally based on an assessment of different factors – these might include the success of the tenant’s business and its turnover at the property as well as researching comparable market rent rates.
The most common way to establish a new rent amount is via an open market rent review, which considers the rental value on the date of the review and compares this to the rental amount if the premises were let out for a new rental period with a new lease, although the precise basis of review depends on the wording of the Lease. For this reason, care needs to be taken in the drafting of the Lease at the outset when it is granted.
Another popular way to establish a fair agreement via a rent review is to compare the current rent to others on the local market – if other similar properties in the local area command a higher rental amount, the Landlord is likely to argue that rent can be increased accordingly.
How Often Are Rent Reviews?
Typically, a rent review clause in a commercial lease will state the frequency of a review every 3-5 years. The clause will normally state how the review is to be carried out as well as how any disputes will be resolved. If agreement cannot be reached there will usually be a mechanism for a referral to an independent surveyor to decide.
Helping You With Your Rent Review
Commercial property leases are complex legal entities and negotiations are vital for any rent review procedure to ensure an agreement can be reached between landlord and tenant.
Negotiations are at the heart of all rent review procedures, and our specialist commercial property solicitors are here to help advise and guide you throughout the process to ensure a favourable outcome for your business.
With our support and guidance, your next rent review will be conducted with clarity, and full consideration of the range of factors affecting your rental amount. If necessary, we can recommend Surveyors/Valuers to assist in the process. All negotiations between you and your tenant will be conducted professionally and effectively to help achieve the outcome you’d like.
To speak to us about your rent review or commercial lease in general, you can contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com and we will be happy to help.
