Commercial leases will often contain provisions for a review of the annual rent at specified intervals during the term of the lease. These intervals are agreed upon and outlined in the commercial lease. The methodology and procedure for reviewing the rent are outlined in the lease and typically the process involves the parties’ representatives putting forward their respective valuations and supporting market evidence in support of their respective cases to negotiate a settlement.
Re-evaluating current market conditions is the most-often employed method of recalculating the new rent.
It is important for landlords to re-evaluate market trends, as it can lead to more rental income and therefore profitability of the property. Whereas, for tenants, it is important to negotiate competently to reduce the rent increasing as much as possible. Preventing delays is also a priority in this situation; as the tenant remains liable for paying any backdated rent from the rent review date and onward.
Where agreement cannot be reached, there will normally be provision for referral of the commercial rent review to a third-party surveyor who will act as an arbitrator or an independent expert.
Poorly executed rent reviews can result in monetary losses, failure to reach an amicable rent agreement, and dissolution of the commercial contract entirely. Therefore, navigating this process in a reasonable and efficient way is vital.