A common point of contention between landlords and tenants are rent reviews. Typically, a landlord will want a higher rent whereas a tenant will want the opposite.
There are various ways in which rent under a lease can be reviewed.
Rent payable under a lease may either be nominal rent (sometimes known as peppercorn rent) or the market rent of the property. Rent does not need to have monetary value, but it must be deemed certain and ascertainable.
The most common rent granted on a commercial lease is by way of a market rent. This would be an annual sum payable in advance, either annually or in instalments.
Some of the types of rent review are as follows:
Stepped increases
This is where the rent has fixed increases which are set at the commencement of the lease. For example, rent starting at £100, doubling every 5 years.
Indexation
An index is nominated to track changes in prices and the rent is then altered to reflect the changes in the prescribed index. For example, if the index increases by 10%, the rent payable would also increase by 10% when reviewed.
The most frequent index nominated is RPI (Retail Prices Index).
Turnover rent
This is based on the income the tenant makes from their use of the property. Typically, this method results in the landlord taking a set percentage of the income.
Market rent
This seeks to set the new rent to a level reflective of the value of the property on the open market. The drafting of this clause in a lease must be specifically drafted and we can assist in this regard.
Upwards only rent review
This will never result in rent payable reducing. The rent payable would be the higher of the market rent at the date of the rent review or the rent paid at the rent review date.
Landlord and tenants must take advice from an expert on the service and receipt of notices under a rent review and use a qualified surveyor to assist in ascertaining the rent.
A well-drafted rent review clause in the lease will provide a mechanism for resolution should a dispute occur.
Please get in touch with the Commercial Property team for assistance or advice on rent review clauses or for assistance in implementing a rent review, by calling 0161 330 6821 or emailing bromleys@bromleys.co.uk