The majority of commercial leases provide for a mechanism to review the rent on a specific date. The machinery of the rent review is detailed within each lease therefore it is imperative both Landlords and Tenants are aware of and understand their documents.
At Roger Hannah we have extensive experience in acting on behalf of Landlords and Tenants of commercial property and have put together Seven Tips to a Rent Review to assist you when dealing with such processes.
- THE LEASE
The first thing to consider is the lease documentation and the provisions contained therein in respect of the rent review clause. It is important that any party ensures they have all correct and relevant documentation including the lease, any licenses to assign or alter or a deed of variation if this applies. Absence of any of these documents could potentially impact the rent review process and ultimately the outcome.
- WHEN IS THE RENT REVIEW
The second point to consider would be the date of the rent review and if there are any clauses within the lease which may impact on this date. Although this is uncommon in most modern leases, certain commercial leases can include a provision for “time to be of the essence”. This means that strict time provisions contained within the rent review clause must be adhered too. If these are missed then it could potentially affect either the landlord or tenants position.
- DIFFERENT TYPES OF RENT REVIEW
To add further confusion rent review clauses can differ from lease to lease. Although the most common basis of review is upwards only to open market rent, there are commercial leases which review the rent in accordance with RPI (Retail Price Index) or CPI (Consumer Price Index) levels and they could also be upwards and downwards. This means that the rent could fall below the passing rent if the market so dictates.
- SPEAK TO AN EXPERT
Rent review clauses to the untrained eye can be quite complicated and the implications of not understanding the process could have a significant impact on occupiers or owners of commercial property. We recommend you initially approach a specialist consultant to discuss your requirements who will be able to provide a free, no obligation quotation and advice.
Depending on the basis of the rent review, you will likely require expert knowledge of the commercial property market which can be hard to come by. Each sector has its own dynamics as does each individual location therefore we recommend this is fully considered before proceeding with a rent review or instructing an agent to act on your behalf.
Once all of the above points have been considered you would likely then enter into negotiation with the opposing party in respect of the rent review. This stage forms the main basis of any rent review and will likely influence the outcome. It is therefore critically important that any party is well informed before entering into negotiations with another party or that they professionally advised by a competent surveyor.
- DISPUTE RESOLUTION
Most rent reviews are normally concluded by negotiation however the lease will also dictate the mechanism to be adopted if an agreement cannot be reached. This is normally referred to in the industry as “3rd party” and involves an independent surveyor appointed to act either as an Arbitrator or Independent Expert. The lease will provide direction for the surveyor to follow and they may require Expert Witness reports to be provided. This stage can be very formal and complicated therefore we advise a consultant is appointed to act on your behalf.
- COMPLETION AND DOCUMENTATION
Following agreement of the rent review a rent review memorandum is normally completed, detailing the pertinent terms of the lease, the revised rent and the effective date of the new rent. This is then annexed to the main lease.