I Am a Commercial Tenant in the UK. What Do I Need to Know About Backdated Rent Reviews? 

As a commercial tenant with a lease in the UK, your lease agreement with your commercial landlord will detail the many rights and obligations regarding 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. Moreover, your landlord may backdate a rent review. As a rent review can cause your rent to change, you should consider some points about backdating rent reviews. This article will discuss what you need to know about backdated rent reviews as a commercial tenant.

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Rent Reviews 

A rent review is where your landlord reviews the amount you often pay them for your occupation of their property. If your commercial lease agreement has a lease term longer than five years, it will likely contain a rent review clause. Your landlord may periodically conduct a rent review – the clause will detail when your landlord may do things, such as every five years.

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 types of ways the rent can change, such as:

• open market rent reviews;
• fixed rent reviews;
• turnover rent reviews; and 
• retail price index rent reviews or reviews based on other indexes.

Backdated Rent Reviews 

Your lease agreement may contain a rent review clause that details when it should occur. However, your landlord may only sometimes carry out the rent review at the time the clause details. Where the rent review clause allows, your landlord may be able to conduct the rent review later. They can exercise the right to review the rent for up to 12 years from the original date of the review if the lease agreement allows it. However, this will depend on the circumstances. You should also note that a review that late is very unusual.

What if My Agreement States That ‘Time Is of the Essence’?

If ‘time is of the essence’, your landlord may not be able to conduct your rent review later than the one stated in the rent review clause. This may be the case where the clause states that notice needs to be given by a particular date if the landlord wishes to review the rent. There may also be timescales related to counter-notices you can serve. In this case, your landlord cannot backdate the rent review once these dates pass. However, if the rent review clause instead states that ‘time is not of the essence’ the landlord can always backdate a rent review.

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 a difference between what rent you have paid your landlord since the date the rent review should have taken place and the total rent which would have been due since then to the current date (according to the new level of rent). 

In addition, where you are liable to pay the balancing sum, most leases will include that an amount of interest is 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 your landlord chooses to delay the rent review and carry it out later as a backdated rent review, they should review the rent as though they were doing it when the review was due. So, for example, if your lease states your rent review was due three years ago and is an open market rent review, your landlord must review it against the market rates three years ago rather than the current 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 carry out your rent review and you are concerned that they may carry it out later. 

First, where your landlord has suggested they have no intention of carrying out a rent review, ask them to put this in writing.

Next, if your rent review clause has the provision for you to request a rent review, you may do this to avoid your landlord exercising their right to carry one out later.  

Key Takeaways

A rent review is where your landlord assesses the rent you pay 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 must 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 your lease allows and when your 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.

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