Commercial Property

Rent Review Rows And How To Avoid Them

'A rent review clause is designed to deal with a particular commercial problem, namely that of the tenant who wants security of tenure for a lengthy term, and the landlord who, in times of inflation or a rapidly changing property market, does not want to commit himself to a fixed rent for the whole of that term.'—(Hoffmann J in MFI Properties v BICC Group Pension Trust [1986] 1 EGLR 115).

Rent review clauses can prove to be contentious and often result in disputes between landlords and tenants.  

What is the most common way rent reviews are conducted?

The most common approach is for landlords to review by looking at the market rent for comparable properties at the review date. Market rent reviews take place at three or five year intervals. They require the parties to assume a new lease of the property on the relevant review date by a willing landlord to a willing tenant.

Should a rent review clause be included in the tenancy agreement?

Yes.  Your tenancy agreement should state how often a rent review will take place and also include a procedure for resolving a dispute.  

Some leases do not require a formal procedure to be followed and merely need one party to write to the other initiating the review. The lease may provide that the rent should be determined as soon as possible. Alternatively, more stringent requirements may be imposed such as the form of notice or counter-notice to be used, as well as time limits for service.

Notice of a rent review must be given in writing.

What if my landlord and I disagree over the new amount of rent proposed?

Well-drafted rent review clauses should provide for referral to an independent valuer where the new rent cannot be agreed. It is fairer if both parties can make the referral although some clauses restrict this right to landlords only. 

Unless the rent review clause unequivocally directs otherwise, the valuer is required as far as possible to determine the rent for the actual premises, on the terms of the existing lease and in the market conditions prevailing at the review date. The court has leaned strongly against landlords' attempts to obtain a 'headline' rent by directing the valuer to ignore rent free periods or other inducements available on new lettings

What rate of rent should I pay during the dispute?

Whilst the rent is being disputed, you must pay the old rate of rent.  However, once agreement is reached, you will have to make up any difference that you owe and may have to pay interest on the overdue amount.

What if I simply cannot afford the new rent?

There a couple of solutions.  You may be able to activate a ‘break clause’ if you negotiated one when signing the lease or you could try to sell the lease or sublet part of the premises.

You could also try negotiating a compromise with your landlord, after all, if you leave, they have to go to the trouble and expense of finding a new tenant.

To find out more about tenants’ rights regarding rent reviews, you can search for a commercial property solicitor on Solicitors Guru

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