Table of Contents
In Short
- A rent review clause allows landlords to assess and increase rent periodically, even if the review happens later than scheduled.
- If a rent review is backdated, tenants may have to pay a balancing sum covering the increased rent from the original review date, often with interest.
- Tenants can minimise risk by understanding lease terms, requesting a rent review if permitted, and obtaining written confirmation if the landlord chooses not to review.
Tips for Businesses
Check your lease terms to understand how rent reviews work and whether your landlord can backdate increases. If your lease states that ‘time is of the essence,’ your landlord may lose the right to a late review. If not, consider requesting a rent review yourself to prevent unexpected backdated charges. Seek legal advice if unsure.
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. 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.
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 will set out 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, because the lease sets out a date for review, the landlord will not 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 this sum as it will be considered a late payment. While these delayed reviews are uncommon, they can be an issue for tenants.
Continue reading this article below the formWhat if My Agreement States That ‘Time Is of the Essence’?
If ‘time is of the essence’, your landlord may be unable 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.
This cheat sheet outlines what you should be aware of in your lease agreement.
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, and if it 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’re 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, our 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 is when your landlord assesses your rent rate with a view to changing it. This can take different forms, but it usually leads to an increase.
A backdated rent review is where your landlord reviews the rent later than the timeframe specified in your lease agreement.
We appreciate your feedback – your submission has been successfully received.
