In Short
- Your lease may allow the landlord to review the rent and charge an increased amount from the original review date, even if the review is carried out late.
- You may have to pay a lump-sum ‘balancing payment’ to cover any shortfall, plus interest.
- Check whether ‘time is of the essence’ in your rent review clause and be aware of any deadlines to dispute a review.
Tips for Businesses
Keep track of rent review dates and review your lease carefully to understand how and when rent can change. If a review is overdue, consider asking the landlord to confirm their position in writing. If your lease allows you to request a review, doing so early may help avoid unexpected backdated increases.
As a commercial tenant with a lease in the UK, your lease agreement with your commercial landlord will outline the various rights and obligations associated with your commercial property. For example, your lease agreement may contain a rent review clause. This clause provides that your landlord will assess your rent periodically and may change the pay rate. A key point for tenants is being aware of landlords’ ability to backdate rent reviews, which can be costly. This article will discuss what you need to know about backdated rent reviews as a commercial tenant.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Rent Reviews
A commercial lease will usually set out an initial amount of rent, which is payable in exchange for your occupation of the property. However, there may be changes to this initial rent amount, usually following a rent review. If your lease has a longer term of years, you may even be looking at multiple rent reviews.
Rent review clauses should also contain further information about the rent reviews. For example, they should state:
- the type of rent review (what your landlord bases the review on);
- the review procedure; and
- what you need to do should you wish to dispute the review.
There are a variety of ways the rent can change, such as:
- open market rent reviews;
- fixed / percentage rent reviews;
- turnover rent reviews; and
- retail price index, rent reviews, or reviews based on other indexes.
Backdated Rent Reviews
Essentially, the rent review clause outlines the timing. This can be the actual time that the review occurs, periods for payment of the increases, and any delay after which interest can accrue on late payment.
However, even though the lease sets out a date for review, the landlord is often not bound to respect these timings. It is key for tenants to be aware of the relevant times, as the landlord can backdate payment of the increased rent. This means that if the rent review occurs later than planned, you will still need to pay the amount of the increase from the set review date.
More importantly, the landlord will often be able to charge interest on the short-fall amount as it will be considered a late payment.
Continue reading this article below the formWhat if My Agreement States That ‘Time Is of the Essence’?
If ‘time is of the essence’ for conducting the review, then your landlord must carry it out on the dates specified, or this will be a breach of the lease.
However, there may also be timescales related to counter-notices you can serve. In this case, your landlord will not be in breach if you fail to serve a counter-notice, but it meets its obligations on time.
It is more often the case that the rent review clause will instead state that ‘time is not of the essence’, which means the review can be carried out late ans the landlord can backdate a rent review. If the lease says nothing, then the usual presumption is that time is not of the essence.
What is a Balancing Sum?
Consider your landlord carries out a backdated rent review, and the rent increases as a result. In this case, the provisions in the rent review clause may allow your landlord to recover any ‘balancing sum’ from you.
A balancing sum is the difference between the rent you have paid your landlord since the date the rent review should have taken place and the total rent that would have been due from then to the current date (according to the new rent level).
In addition, where you are liable to pay the balancing sum, most leases will include interest payable on that amount. Landlords typically view the interest amount as compensation because you could pay a lower rent for the period in which the review had not occurred. The rent review provision will state if this is possible.
If the landlord has complete control over the review timing, it might be beneficial to negotiate to remove the interest provisions. The balancing payment will put the landlord back in the position they would have been in for the late review.
How Do Review Dates Work?
It is important to note that if the rent review does not occur on the lease review date but instead is carried out later and the increase is backdated, then normally, the review occurs as though the landlord was reviewing the rent on the intended review date.
What if My Landlord Wishes to Backdate My Rent Review?
As a commercial tenant, you can take a couple of actions if your landlord still needs to conduct your rent review and you are concerned that they may do so later.
First, if your landlord has suggested they have no intention of carrying out a rent review, ask them to put this in writing. While this may not count as a true waiver of their legal rights (you should check what your lease says about when a waiver will be effective), in some cases, it will waive their rights to conduct that review, and this is useful if you are in dispute about the rent increase.
Next, if your rent review clause allows you to request a rent review, you may do this to avoid your landlord exercising their right to carry one out later. This is why being aware of the key dates in the lease is crucial to avoiding disputes down the line.
Key Takeaways
A rent review is where your landlord assesses your rent and potentially increases it. If your lease contains a rent review clause, it will detail when your landlord may exercise this right. If your landlord does not execute this right at this time and circumstances allow, they may do so later. Where they do this, there are specific points you should be aware of.
For example:
- your landlord can recover the balancing sum for any rent increase as a lump sum and with interest;
- your landlord should conduct the rent review like they would have on the date when it was due to occur; and
- tenants may request a rent review if their lease allows and when their landlord has missed the date to avoid a balancing sum to pay.
If you need help understanding backdated rent reviews in the UK, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A rent review occurs when your landlord assesses your rent rate with the intention of changing it. This can take different forms, but it usually leads to an increase.
A backdated rent review occurs when your landlord reviews the rent after the timeframe specified in your lease agreement and claims the additional rent.
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