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 that 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 a brief list to assist in 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 ensure they have all correct and relevant documentation, including the lease, any licences to assign or alter, or a deed of variation if this applies. The 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 the strict time provisions contained within the rent review clause must be adhered to too. If these are missed, then it could potentially affect either the landlord’s or tenant’s 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 for open market rent, there are commercial leases that 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 be fully considered before proceeding with a rent review or instructing an agent to act on your behalf.
NEGOTIATIONS
Once all of the above points have been considered, you would likely then enter into negotiations 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 an 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 that a consultant be appointed to act on your behalf.
COMPLETION AND DOCUMENTATION
Following the 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.
Here at Roger Hannah, we are always on hand to provide advice, and with our specialist team having in excess of 80 years’ experience within the commercial In the lease advisory market, we are in a good position to assist.