Rent Reviews – How the Process Works

Within a lease for commercial premises, it is more than likely terms and conditions for rent reviews will be included. This permits a landlord to assess the sum of rent paid at regular intervals, often after every three or five years. While they are intended as a way of adjusting rent to the current market level, tenants must remain vigilant, as you may end up paying far more than was initially agreed.

Types of Rent Review

There are a number of different approaches to rent reviews, the exact terms and conditions of which will be stipulated within the lease. The most common types of rent review include:-

1. Fixed Rental Increases

Often known as ‘upward only rent review’ clauses, this approach states how much rent will increase by and when, regardless of market prices. This can be unfavourable for a tenant, as rent will never drop, even if prices in the surrounding area are decreasing.

2. Indexed Rent

Indexed rent reviews allow the rent to change in line with an objective measurement beyond the control of those in the lease, such as Retail Price Index. This can be a more useful method – particularly for tenants – as rent is able to go both up and down.

3. Open Market Rent Review

Most commonly Commercial Leases will provide for the rent to be reviewed to the “Open Market Rent”. This is an assessment of the rental, usually on a square footage basis, calculated by comparing recent rental valuations of similar types of property nearby. The Lease will generally have detailed provisions as to how this is calculated, often disregarding certain matters such as any value attached to the tenant’s own business, and often making certain assumptions such as the parties being in full compliance of the lease obligations. These values are usually assessed by a Surveyor with experience of such matters, and in the event of a dispute, by a Surveyor appointed by both parties to act as either an expert or an arbiter.

Written Notice

When a rent review is due to be activated, a landlord will begin the process by giving written notice to the tenant. Within this will be included a new sum for rental payments. A tenant must then provide a written reply either consenting or contesting the figure. There are often certain deadlines at play, so it is important a tenant does not delay with their response. If there is a disagreement and the deadlines passes, then the new figure will stand.

Rent Review Disputes

If a tenant does not agree with the rent review, then negotiations with the landlord will be necessary. A solicitor specialising in commercial leaseholds will be able to assist you in this process, helping you to settle upon a deal each party is happy with. If an agreement still cannot be reached, an independent mediator (most commonly a Surveyor) will be required to help resolve the dispute.

Rent Review Memorandum

Once an agreement has been reached, the new terms and condition of rent must be laid out in a Rent Review Memorandum. This must be signed by both landlord and tenant before being registered in the Books of Council and Session. A solicitor can help you with the necessary paperwork, explaining the technical jargon and ensuring all the required legalities are taken care of.

Legal Experts in Edinburgh

It is essential that both landlord and tenant seek professional advice before signing a lease which includes conditions for rent reviews, as there are a number of technicalities to the process which must be fully understood. Otherwise, you may find you have sign a contract with inappropriate conditions for rent reviews. Tenants in particular should be wary, as terms for upward only rent clauses can prove to be very unfavourable.

McKay Norwell has a team of dedicated legal experts ready to help you with all your commercial leasehold matters. Whether you are need advice on rent reviews within a lease, you are disputing a rent review, or you are in the process of filing a Rent Review Memorandum, we can help.

Simply call us for a free assessment immediately on 0131 222 8000 or complete the enquiry form on the right of this page and we will be delighted to help you.

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